Ch.2 Partnership Basic Concepts
- The written agreement of partnership is called ______.
(a) Articles of Association (b) Memorandum of Association (c) Partnership Deed (d) None of these
Ans : partnership deed - _______ account shows how profit is distributed among partners.
(a) Partners’ Current Account
(b) Profit and Loss Appropriation Account
(c) Partners’ Capital Account
(d) Profit and Loss Account
Ans : (b) Profit and Loss Appropriation Account - A Partnership firm incurs a loss of ` 28,000 during the year 2018-19. Which among the following is admissible to Partners at the end of this year ?
(a) Interest on Partners Loan
(b) Interest on Partners Capital
(c) Commission to Partners
(d) Salary to Partners
Ans : (a) Interest on Partners Loan - Siva is a partner in United Tours and Travels. He withdraws ` 4,000 per month regularly in the middle of every month during the year 2019. The rate of interest on drawings is 8%. Calculate Interest on drawings for the year 2019. (2 score)
Ans: Total drawings = 4000*12=48,000
Interest on drawing = 48000*8/100*6/12 = 1920 - Rejith is a partner in a firm. On 1st January 2017, his capital account balance was ` 2,20,000. As per partnership agreement a partner is entitled to 6% interest per annum on his capital. Rejith introduced additional capital ` 80,000 on 01-07-2017 and withdrew ` 50,000 on 1-10-2017. Calculate the interest on capital for the year ending 31st December 2017.(3score)
Ans : Interest on capital
For 220000×6/100×6/12 = 6600 (220000 for 6 month, 1-1-17 to 1-7-17)
300000×6/100×3/12 = 4500 (300000 for 3 months ,1-7-17 to 1-10-17)
250000×6/100×3/12 = 3750 (250000 for 3 months ,1-10-17 to 31-12-17)
Interest on capital 14,850
To watch video : Click here - Identify the name of the account which is prepared to show, how the profits are distributed among partners.
(a) Income & Expenditure A/c.
(b) Profit & Loss A/c.
(c) Profit & Loss Appropriation A/c.
(d) None of these
Ans : (c) Profit & Loss Appropriation A/c. - Madhu a partner withdrew ` 1,100 per month for his personal use during the year ending 31st December, 2017. Calculate interest on his drawings at 10% p.a. when the amount is withdrawn on the first day of every month.
Ans : Total drawings =1100*12=13200
Interest on drawings = 13200*10/100*5.5/12=605 - Chaithanya and Sandra are partners in a firm, sharing profits and losses equally. During the financial year 2017-18, Sandra withdraw ` 20,000 quarterly on the beginning of each quarter. Find out the interest on drawings @ 8% p.a.
Ans : Total Drawings = 20000*4 =80,000
Interest on drawings = 80000*8/100*7.5/12 =4000 - Rajan and Gopan are partners in a firm. If they do not have any partnership agreement, what should be done in the following cases ?
(a) Rajan demands a salary of ` 2,000 per month for his service in business.
(b) Gopan wants that profit should be distributed in the ratio of Capitals, but Rajan wants that it should be distributed equally. - How will you treat the following items in partnership accounts in the absence of partnership deed ? (2 Marks)
(a) Profit Sharing Ratio(b) Interest on Drawings
Ans :Rules applicable in the absence of partnership deed
1. Profit sharing ratio – equally
2. Interest on capital – not entitled
3. Interest on drawings – not entitled
4. Remuneration to partners – not entitled
5. Interest on loan –@ 6% - Write any 4 differences between fixed capital and fluctuating capital methods. (3Marks)
- What are the two methods of maintaining Capital Accounts of partners ? Give any four differences between these two methods.
Ans : Fixed capital method and Fluctuating capital method
Difference between Fixed capital method and Fluctuating capital method
| Fixed Capital Method | Fluctuating Capital Method | |
| 1-Number of Accounts | Two accounts,Capital a/c and current a/c | One account- Capital a/c(all items included in capital a/c itself) |
| 2-Nature | Remain un altered | Fluctuates |
| 3-Adjustments | Made in Current a/c | Adjustment made in current a/c |
| 4-Appearance in the B/S | Both Capital and Current a/c | Only capital a/c |
| 5-Specifically mentioned in Partnership deed | It should be mentioned in the Partnership Deed | Not necessary |
- Calculate interest on drawings from the following :
| Month & Year | Amount ` |
| Jan.-1, 2018 | 12,000 |
| Feb.- 28, 2018 | 6,000 |
| April -1, 2018 | 8,000 |
| Aug.-1, 2018 | 6,000 |
| Nov.-30, 2018 | 4,000 |
| Dec.-31, 2018 | 2,000 |
Accounting year closes on Dec. 31st every year and interest on drawings charged at 6% p.a.
Interest on Drawings = 3,10,000×6/100×1/12 = Rs.1550 (5 Marks)
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- Priya is a partner in a firm, her capital at the end of the financial year 2016-17 was 2,00,000. During the year she had withdrawn ` 30,000. Her share of profit before charging interest on capital for the year was ` 8,000. Calculate interest on capital @ 10% p.a.
Ans :
Closing capital Balance – 200,000
Add : Drawings – 30000
2,30,000
Less : Share of profit 8000
Opening capital 2,22,000
Interest on capital = 2,22,000×10/100=22,200
- List out any four items to be credited to a Partner’s current account ,when capitals are fixed.(2 marks)
- Under fixed capital method of maintaining capital accounts, yearly adjustment are transferred to partner’s ______.
(a) Capital Account (b) Current Account
(c) Loan Account (d) Cash Account
Ans : Current Account - Mr. Rajeev, a partner in a firm withdrew ` 2,000 each every month from the firm. Calculate the amount of interest on drawings @ 8% per annum, assuming that he withdraws the amount :
(a) at the beginning of each month.
(b) at the end of each month. - Jeeja and Rekha are partners in a firm. Their capital balances as on 01-04-2020 were Jeeja ` 1,50,000 and Rekha ` 2,00,000. On 1-10-2020 Jeeja introduced additional capital of ` 50,000. Calculate the interest on capital @ 10% per annum assuming that they closes their books of account on 31st March every year.
- Partners are entitled to get _____ in the absence of an agreement.
(a) Salary (b) Share of Profit in capital ratio (c) Interest on Partners loan @ 6% p.a. (d) Commission - A & B are partners in a firm sharing profits and losses in the ratio of 2:1. They admit C as a partner for 1/4 share in profit with a guaranteed minimum profit of ` 10,000. The net profit of the firm after C’s admission is ` 30,000. C will get a profit of _______.
(a) ` 7,500 (b) ` 10,000 (c) ` 5,000 (d) ` 15,000
Ans :10,000 - Akhil, a partner in a firm withdrew the following amounts during the year ended March 31, 2021 for his personal use. Date of Withdrawal Amount
April 30, 2020 7,000
Sept. 30, 2020 4,000
Dec. 1, 2020 5,000
Calculate the amount of interest on drawings to be charged from Akhil, if the rate of interest is at 8% p.a.
Ans : Product method ,806.66 or 807
- Santhosh and Suresh are partners in a firm. Their capital accounts showed a balance of ` 50,000 and ` 40,000 as on 01/04/2020. Santhosh introduced an additional capital of ` 10,000 on 01/07/2020 and Suresh ` 5,000 on 01/01/2021. Calculate partners interest on capital @ 6% p.a. for the year ended 31/03/2021.
Ans : Santhosh – 3450, Suresh – 2475 - Reena and Rehna are partners in a firm sharing profits and losses in the ratio of 3 : 2 with capitals of ` 5,00,000 and ` 4,00,000 respectively. The profit of the firm for the year ended March 31, 2021 was ` 1,00,000. Interest on capital is to be allowed at 5% p.a. Reena is to be paid a salary of ` 2,500 per month. Prepare the Profit and Loss Appropriation Account to show the distribution of profit among the partners.
Ans : Profit Reena – 15000, Rehna – 10000