QUESTIONS FOR SELF PRACTICE

Problem 1.  Aditya and Isha are partners in a firm. State by giving reasons whether their claims are valid if partnership deed is silent in the following matters:-

(a)   Isha had advanced a loan to the firm. She claims interest at the usual interest rate charged by banks. The rate of interest is 12% p.a.

(b)   Aditya wants to introduce his brother Anuj into the business. Isha objects it.

(c)    Aditya spends twice the time that Isha devotes to the business. He wants a salary of Rs.2,000 per month for the extra time spent by him.

(d)   Aditya has invested Rs.3,00,000 and Isha only Rs.30,000 as capital. Aditya wants interest on capital @ 12% p.a.

(e)    Aditya used Rs.20,000 belonging to the firm and suffered a loss of Rs.5,000 in speculation. He wants to return only Rs.15,000.

(f)     Aditya wants to purchase goods from Oscar for the firm but Isha does not agree.

(g)   Aditya wants that profits should be shared in the capital ratio.

(h)   Aditya wants to inspect the books of the firm but Isha declines.

(i)     Aditya used the car of the firm for personal purpose and incurred a loss of Rs.2,000 and wants to record in the firms books.

(j)     Isha spent a week in a holiday resort with her family; wanted to record those expenses in firm’s books. Aditya object it.

Preparation of Profit & Loss Appropriation Account and Capital Accounts

Problem 2. The partnership agreement of Bunty and Babli provides that:

(a)   Profit will be shared equally.

(b)   Bunty will be allowed a salary of Rs.400 p.m.

(c)    Babli who manages the sales department will be allowed a commission equal to 10% of the net profit after allowing Bunty’s salary.

(d)   7% interest will be allowed on partner’s fixed capital.

(e)    5% interest will be charged on partner’s annual drawings.

(f)     The fixed capitals of Bunty and Babli are Rs.1,00,000 and Rs.80,000 respectively. Their annual drawings were Rs.16,000 and Rs.14,000 respectively. The net profit the year ending March 31, 2002 amounted to Rs.40,000.

Problem 3. Shyam and Kanwal are partners in Ultimate Success Point sharing profits in the ratio of 2:1 with capitals of Rs.20,000 and Rs.10,000 respectively. Each partner is entitled to 8% interest on his capital. Shyam is entitled to a salary of Rs.600 p.m. together with a commission of 10% of the Net Profit before charging any commission. Kanwal is entitled to a salary of Rs.500 p.m. together with a commission of 10% of Net profit after charging all commissions. The profits for the year prior to calaculation of interest on capital but after charging salary of partners amounted to Rs.8,000. Prepare Profit and Loss Appropriation A/c and Partners’ Capital Accounts: (i) When capitals are fixed, and (ii) When capitals are fluctuating.

Problem 4. Nidhi and Nisha are partners in a firm, sharing profits and losses in the ratio of 3:1. On April 1,1999 they had capitals of Rs.30,000 and Rs.60,000 respectively and on the same date their current accounts balances appears as Rs.30,000 (cr.) and Rs.15,000 (cr.) The profit and loss account of the firm for the year ending March 31,1999 shows a net profit of Rs.1,50,000. Interest on capitals was allowed @ 5% p.a. and interest on drawings was to be charged @ 6% p.a. at an average of six months. The partners Rs.12,000 to Nidhi and Rs.9,000 to Nisha. Prepare the Profit and Loss Appropriation Account and Loss show the partners’ currents accounts.

Problems 5. Anupam and Neeraj were partners in a firm sharing profit in the ratio of their capitals contributed on commencement of business, which were Rs.80,000 and Rs.60,000 respectively. The firm stared business on April 1,2005. According to the partnership agreement interest on capital and drawings are 12% and 10% p.a. respectively. Anupam and Neeraj are to get a monthly salary of Rs.2,000 and Rs.3,000 respectively. The profits for year ended March 31,2002 before making above appropriation was Rs.1,00,300. The drawings amounted to Rs.2,000 for Anupam and Rs.2,500 for Neeraj. Prepare Profit and Loss Appropriation Account and partners’ capital accounts assuming that their capitals are fluctuating.

Problems 6. Krishan and Radha started partnership business on 1^st January, 2002. They contributed Rs.80,000 and Rs.60,000 respectively as their capitals. The terms of the partnership agreement are as under:-

(a)   Interest on Capital and drawings @ 12% per annum.

(b)   Krishan and Radha to get a monthly salary of Rs.2,000 and Rs.3,000 respectively.

(c)    Sharing of Profit or loss will be in the ratio of their capital contribution.

The Profit for the year ended 31^st December 2002, before making above appropriation was Rs.1,00,300. The drawings amounted to Rs.2,000 for Krishan and Rs.2,500 for Radha.

Prepare Profit & Loss Appropriation Account and Partners’ Capital Account assuming that :

(a)   their capitals are fluctuating

(b)   their capitals are fixed.

Calculation of interest on drawings

Problem 7. Calculate the interest on Drawing of Rhythm @ 10% p.a. for year ended    31^st Dec. 2002 in each of the following cases:

(a)   If his drawings during the year were Rs.24,000;

(b)   If he withdrew Rs.2,000 p.m. in the beginning of every month.

(c)    If he withdrew Rs.2,000 p.m. at the end of every month.

(d)   If he withdrew Rs.2,000 p.m.;

(e)    January 31^st – Rs.6,000; March 31^st – Rs.4,000; July 1^st – Rs.8,000; Sept. 30^th – Rs.3,000; November 1^st – Rs.5,000.

Problem 8. Amit and Sumit are partners in a firm. They share profits and losses in the ratio of 3:2. As per their partnership agreement, interest on drawings is to be charged       @ 10% p.a. Their drawings during 2002 were Rs.48,000 and Rs.32,000 respectively. Calculate interest on drawings based on the assumption that the amounts withdrawn evenly throughout the year.

Problems 9. Francis is a partner in a firm. He withdraws the followings amounts during the year 2002: February 1^st - Rs.2,000; May 1^st - Rs.5,000; June 30^th - Rs.2,000; October 31^st - Rs.2,000; December 31^st - Rs.2,000. Interest on drawings is to be charged @ 7 ½ % p.a. Calculate amount of interest to be charged on Francis’s drawings for year 2002.                             

Problems 10. Shyam and Kanwal of Ultimate Success Point, D- 15/138, Sector – 3, Rohini, are partners in a firm. They share profits and losses equally. Their monthly drawings are Rs.4,000 each. Interest on drawings is to be charged @ 10% p.a. Calculate interest on Shyam’s drawings for the year 1989 assuming drawings are made:

(a)   in the beginning of every month,

(b)   in the middle of every month,

(c)    at the end of every month,

(d)   in the beginning of every quarter, and

(e)    at the end of every quarter.

Calculation of interest on capital

Problems 11.  Hindu and Muslim are partners sharing profits equally. Their capitals as on April 1, 2006 were Rs.5,00,000 and Rs.3,00,000 respectively. On July 1, 2006, they decided that their capitals should be Rs.4,00,000 each. The necessary adjustments in the capitals were made by introducing or withdrawing cash. Interest on capital is allowed at 8% p.a. Compute interest on capital for both the partners for the year ending on March 31, 2007.              

Problem 12. On March 31, 2003 after the close of books of accounts, the capital account of Jitender, Akhil and Varun showed balance of Rs.12,000, Rs.9,000 and Rs.6,000 respectively but, it was later discovered that interest on capital @ 5% p.a.  had been omitted. The profit for the year ended March 31, 2003 amounted to Rs.18,000 and the partners’ drawings had been Jitender Rs.1,800. Akhil Rs.2,250 and Varun Rs.1,350. The profit sharing ratio was 3:2:1. Calculate interest on capital

Calculation of Salary or commission to partners

Problem 13. Kanwal and Jeet are partners in a firm. Kanwal is to get a commission of 10% of Net Profit before charging any commission. Jeet is to get a commission of 10% on Net Profit after charging all commissions. Net Profit before charging all commission was Rs.55,000. Find out the commission of Kanwal and Jeet.

Calculate of Salary or Commission to partners

Problems 14. X and Y are partners sharing profits and losses in the ratio of 2:3 with capital of Rs.20,000 and Rs.10,000 respectively. On 1^st July, 2002 X and Y granted loan of Rs.40,000 and Rs.20,000 respectively to the firm. Show the distribution of profit/losses for the year 2002 in each of the following alternative cases:

(a)   If the profit before any interest for the year amounted to Rs.2,100.

(b)   If the profits before any interest for the year amounted to Rs.1,500.

(c)    If the losses before any interest for the year amounted to Rs.1,500.

Calculation of Capital Ratio

Problems 15. On 1^st January, 2001 L, M and N start a business in partnership. L puts in Rs.30,000 at first but withdraws Rs.10,000 at the end of six months. M introduces Rs.25,000 at first and increases it to Rs.55,000 at the end of four months but withdraws Rs.10,000 at the end of eight months. N brings in Rs.25,000 at first but increase it by Rs.20,000 at the end of seven months. During the year ended 31^st December, 2002 they make a Net Profit of Rs.36,000. Show how the partners should divide this amount on the basis of effective capital employed by each partner.

Treatment of Past Adjustments

Problem 16. The capital accounts of Saurabh, Mohit and Rahul stood at Rs.10,000; Rs.7,500; Rs.5,000 respectively after the necessary adjustments in respect of the drawings and the net profit for the year ended 31^st December, 1991. It was subsequently ascertained that 5% interest on capital and on the drawings of each partner had been omitted. The drawings of the partners have been: Saurabh Rs.1,000, Mohit Rs.750 and Rahul Rs.600. The interest on these amounted to Rs.20; Rs.15 and Rs.7.50 respectively. The profit for the year as already adjusted amounted to Rs.5,000. The partners share profits in the ratio of 2:2:1. Give the journal entries necessary for the above adjustment and show your workings clearly.

Problem 17. Jasleen, Harleen and Loveleen sharing profits & lossess equally have capitals of Rs.1,20,000, Rs.90,000 and Rs.60,000. For the year, 2001, interest was credited to them @ 12% p.a. instead of 10% p.a. Give adjusting entry.

Problem 18. Profits earned by a partnership firm for the year ending 31^st December 1993 were distributed equally among the partners – Nidhi & Nisha – without allowing interest on capital (Rs.3,000 due to Nidhi and Rs.1,000 due to Nisha). Pass an adjusting entry.

Problem 19. A and B are partners in a firm. Their respective capital contributions are Rs.3,00,000 and Rs.1,50,000 and their profit sharing ratio is 3:2. Immediately after the allocation of Rs.90,000 as profit for the year ended 31^st December 2001, it was discovered that in arriving at the profits for 2001 the following two items had been ignored:

(a)   Outstanding expenses of Rs.7,000 and

(b)   Accrued interest on investment of Rs.4,000.

Pass adjusting journal entries.

Problems 20. Sun, Moon and Star are partners. They have omitted on capital @ 10% p.a. for three years ended 31^st December, 2003. Their fixed capital on which capital on which interest was to be calculated throughout were Sun Rs.10,000, Moon Rs.8,000 and Star Rs.7,000. Their profit sharing ratios were – 2001 – 1:2:2; 2002 – 5:3:2; 2003 – 4:5:1. Give the necessary adjustment journal entry.

Problem 21. On December 31, 2001 the capital accounts of Ena, Meena and Deeka after making adjustments for profits, drawings, etc. were as, Ena – Rs.80,000, Meena – Rs.60,000, and Deeka – Rs.40,000. Subsequently, it was discovered that interest on capital and interest on drawings had been omitted. The partners were entitled to interest on capital @ 5% p.a. The drawings during the year were: Ena – Rs.20,000; Meena – Rs.15,000 and Deeka – Rs.9,000. Interest on drawings chargeable to the partners was Rs.500, Rs.360 and Rs.200 respectively. The net profit during the year amounted to Rs.1,20,000. The profit sharing ratio of the partners was 3:2:1. Record the necessary adjustment entries for rectifying the above errors of omission. Show your workings.

Problem 22. Simran and Kanwal are equal partners. Their capitals are Rs.40,000 and Rs.80,000 respectively. After the accounts for the year have been prepared it is discovered that interest at 5% p.a. as provided in the partnership agreement has not been credited to the capital accounts before distribution of profits. It is decided to make an adjustment entry at the beginning of the next year. Record the necessary journal entry.

Calculate of Guarantee to a partner

Problem 23. X, Y and Z are partners in a firm. Their profit-sharing ratio is 5:3:2. However, Z is guaranteed a minimum amount of Rs.10,000 as share of profit every year. Any deficiency arising on that account shall be met by Y. the profits for the two years ending 31^st December 1993 and 1994 were Rs.40,000 and Rs.60,000 respectively.

Prepare Profit and Loss Appropriation Account for the two years.

Problem 24. Alpha, Beeta and Gama are partners in a firm. Their profit sharing ratio is 2:2:1. However, Gama is guaranteed a minimum amount of Rs.10,000 as share of profit every year. Any deficiency arising if any, on that account shall be met by Beeta. The profits for two year ending December 31,2000 and 2001 were Rs.40,000 and Rs.60,000 respectively. Prepare the Profit and Loss Appropriation Account for the two years.

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