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Questions:

Generic 2

18 x 2 = 36

Ram and Shyam were partners. Ram withdrew Rs. 18,000 at the beginning of each half year. Interest on drawings is chargeable @ 10% p.a. Calculate interest on the drawings for the year ending 31st December 2018 using average period.

Kevin and Francis are partners. Kevin draws Rs. 5,000 at the end of each quarter. Interest on drawings is chargeable at 6% p.a. Calculate interest on drawings for the year ending 31^st March 2019 using average period.

Mathew is a partner who withdrew Rs.20,000 during the year 2018. Interest on drawings is charged at 10% per annum. Calculate interest on drawings on 31st December 2018.

Mani is a partner, who withdrew Rs. 30,000 on 1^st September, 2018. Interest on drawings is charged at 6% per annum. Calculate interest on drawings on 31^st December, 2018 and show the journal entries by assuming that fluctuating capital method is followed.

Mannan and Ramesh share profits and losses in the ratio of 3:2 and their capital on 1st April, 2018 was Mannan Rs. 1,50,000 and Ramesh Rs. 1,00,000 respectively and their current accounts show a credit balance of Rs. 25,000 and Rs. 20,000 respectively. Calculate interest on capital at 6% p.a. for the year ending 31^st March, 2019 and show the journal entries.

Jayaraman is a partner who withdrew Rs. 10,000 regularly in the middle of every month. Interest is charged on the drawings at 6% per annum. Calculate interest on drawings for the year ended 31st December, 2018.

Why is Profit and loss appropriation account prepared?

What is the journal entry to be passed for providing interest on capital to a partner?

What is meant by fixed capital method?

10.

What is a partnership deed?

11.

Define partnership.

12.

Vennila and Eswari are partners. Vennila draws Rs.5,000 at the beginning of each half year. Interest on drawings is chargeable at 4% p.a. Calculate interest on drawings for the year ending 31^st December 2018 using average period.

13.

Priya and Kavitha are partners. Priya draws Rs. 4,000 at the end of each quarter. Interest on drawings is chargeable at 6% p.a. Calculate interest on drawings for the year ending 31st December 2018 using average period.

14.

Rajan is a partner who withdrew Rs. 30,000 during the year 2018. Interest on drawings is charged at 10% per annum. Calculate interest on drawings on 31st December, 2018.

15.

Velan is a partner who withdrew Rs. 20,000 on 1st April 2018. Interest on drawings is charged at 10% per annum. Calculate interest on drawings on 31st December 2018 and pass journal entries by assuming fluctuating capital method.

16.

The capital account of Arivazhagan and Srinivasan on 1^stJanuary 2017 showed a balance of Rs. 15,000 and Rs. 10,000 respectively. On 1^st July 2017, Arivazhagan introduced an additional capital of Rs. 5,000 and on 1st September 2017 Srinivasan introduced an additional capital of Rs. 10,000. Calculate interest on capital at 6% p.a. for the year ending 31^st December 2017.

17.

Antony and Akbar were partners who share profits and losses in the ratio of 3:2. Balance in their capital account on 1^st January 2018 was Antony Rs. 60,000 and Akbar Rs. 40,000. On 1^st April 2018 Antony introduced additional capital of Rs. 10,000. Akbar introduced additional capital of Rs. 5,000 during the year. Calculate interest on capital at 6% p.a. for the year ending 31^st December 2018.

18.

Mannan and Ramesh share profits and losses in the ratio of 3:1. The capital on 1^stApril 2017 was Rs. 80,000 for Mannan and Rs. 60,000 for Ramesh and their current accounts show a credit balance of Rs. 10,000 and Rs. 5,000 respectively. Calculate interest on capital at 5% p.a. for the year ending 31^st March 2018 and show the journal entries.

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Answers Key:

Generic 2

18 x 2 = 36

Calculation of interest on drawings of Ram (using average period)
Total amount of drawings = 18,000 \(\times\) 2 = Rs. 36,000
If drawings are made at the end of every half year, average period = 9
Interest on drawings = Total amount of drawings \(\times\) Rate of interest \(\times\) \(\frac{Average \ period}{12}\)
= Rs. 36000 \(\times\) \(\frac{10}{100}\times\frac{9}{12}\)
= Rs. 2,700

Calculation of interest on drawings of Kevin (using average period)
Total amount of drawings = Rs. 5,000 x 4 = Rs. 20,000
If drawings are made at the end of every quarter, average period = 4.5
Interest on drawings = Total amount of drawing x Rate of interest x \(\frac{Average \ period}{12}\)
= Rs. 20,000 x \(\frac{6}{100}\) x \(\frac{4.5}{12}\)
Interest on drawings of Kevin = Rs. 450

Interest on Drawings = Rs. 20,000 x \(\frac{10}{100}\) x \(\frac{6}{12}\)
= Rs. 1000
Interest on Drawings of Mathew = Rs.1,000

Interest on drawings = Amount of drawings \(\times\) Rate of Interest x Period of interest
= Rs. 30,000 \(\times\) \(\frac{6}{100}\) \(\times\) \(\frac{4}{12}\) = Rs. 3,600
Interest on drawings of mani = Rs. 600

Journal entries
Date	Particular	Debit Rs.	Credit Rs.
2018	Santhosh's capital A/c Dr.	600
Dec 31	To Interest on drawings A/c		600
	(Interest on drawings charged)
2018	Interest on drawings A/c Dr	600
Dec 31	To Profit and loss appropriation A/c		600
	(Interest on drawing account closed)

Calculation of interest on capital:
Interest on capital = Amount of capital \(\times\) Rate of interest
Interest on Mannan's capital = 1,50,000 \(\times\) \(\frac{6}{100}\) = Rs. 9,000
Interest on Ramesh's capital = 1,00,000 \(\times\) \(\frac{6}{100}\) = Rs. 6,000

Journal entries
Date	Particulars	L.F	Debit Rs.	Credit Rs.
2019 March 31	Interest on capital A/c Dr To Mannan's current A/c To Ramesh's current A/c (Interest on capital provided)		15,000	9,000 6,000
2019 March 31	Profit and loss appropriation A/c Dr To Interest on capital A/c (Interest on capital closed)		15,000	15,000

If Drawings are made in the middle of every month:
Average period = 6
Interest on drawings = Total amount of drawings \(\times\) Rate of interest \(\times\) \(\frac{Average \ Period}{12}\)
= Rs. 10,000 \(\times\) \(\frac{6}{100}\times\frac{6}{12}\)
= Rs. 300

(i) The profit and loss appropriation account is an extension of profit and loss account prepared for the purpose of adjusting the transactions relating to amounts due to and amount due from partners. It is a nominal account in nature
(ii) The balance being the profit or loss is transferred to the partner's capital or current account in the profit sharing ratio.

Following are the journal entries to be made in the books of the partnership firm.
a. For providing interest on capital:

Date	Particulars	L.F	Debit Rs.	Credit Rs.
	Interest on capital A/c Dr		XXXX
	To partner's capital I currentA/c			XXXXX

b. For closing interest on capital account:

Date	Particulars	L.F	Debit Rs.	Credit Rs.
	Profit and loss appropriation A/c Dr		XXXX
	To Interest on Capital A/c			XXXXX

(i) Under this method, two accounts are maintained for each partner viz.
a) Capital account and
b) current account
(ii) The transactions relating to initial capital introduced, additional capital introduced and capital permanently withdrawn are entered in the capital account and all other transactions are recorded in the current account.

10.

Partnership deed is a document in writing that contains the terms of the agreement among the partners. It is not compulsory for a partnership to have a partnership deed as per the Indian Partnership Act, 1932. But, it is desirable to have a partnership deed as it serve as an evidence of the terms of the agreement among the partners.

11.

According to section 4 of the Indian partnership Act, 1932, partnership is defined as "the relation between persons who gave agreed to share the profits of a business carried on by all or any of them acting for all".

12.

Calculation of interest on drawings of Vennila (using average period)
Total amount of drawings = 5,000 x 2 = Rs.10,000
If drawings are made at the end of every half year, average period = 9
Interest on drawings = Total amount of drawings x Rate of interest x \(\frac { Average\quad period }{ 12 } \)
= Rs.10,000 x \(\frac { 4 }{ 100 } \times \frac { 9 }{ 12 } \) = Rs. 300

13.

Calculation of interest on drawings of Priya (using average period)
Total amount of drawings = 4,000 \(\times\) 4 = Rs. 16,000
If drawings are made at the end of every quarter, average period = 4.5
Interest on drawings = Total amount of drawings \(\times\) Rate of interest \(\times\) \(\frac { Average\quad period }{ 12 } \)
= Rs. 16,000 \(\times\) \(\frac { 6 }{ 100 } \times \frac { 4.5 }{ 12 } \) = Rs. 360

14.

Interest on Drawings = 30,000 \(\times\) \(\frac { 10 }{ 100 } \times \frac { 6 }{ 12 } \) = Rs. 1,500

15.

Interest on drawings = Amount of drawings \(\times\) Rate of interest \(\times\) Period of interest
= Rs. 20,000 \(\times\) \(\frac{10}{100}\) \(\times\) \(\frac{9}{12}\) = Rs. 1,500

Date	Particulars		Debit Rs.	Credit Rs.
2018	Velan’s capital A/c	Dr.	1,500
Dec. 31	To Interest on drawings A/c (Interest on drawings charged)			1,500
"	Interest on drawings A/c	Dr.	1,500
	To Profit and loss appropriation A/c (Interest on drawings account closed)			1,500

16.

Calculation of interest on capital:
Arivazhagan:

On opening capital for 1 year	15,000 \(\times\) \(\frac{6}{100}\)	Rs. 900
On additional capital for 6 months	5,000 \(\times\) \(\frac{6}{100}\) \(\times\) \(\frac{6}{12}\)	Rs. 150
Interest on capital		Rs. 4,050

Interest on Akbar’s capital:

On opening capital for 1 year	10,000 \(\times\) \(\frac{6}{100}\)	Rs. 600
On additional capital for 4 months	10,000 \(\times\) \(\frac{6}{100}\) \(\times\) \(\frac{4}{12}\)	Rs. 200
Total interest on capital		Rs. 800

Note: Since the date of additional capital introduced by Akbar is not given, interest on additional capital is calculated for an average period of 6 months.

17.

Calculation of interest on capital:
Interest on Antony’s capital:

On opening capital for 1 year	60,000 \(\times\) \(\frac{6}{100}\)	Rs. 3,600
On additional capital for 9 months	10,000 \(\times\) \(\frac{6}{100}\) \(\times\) \(\frac{9}{12}\)	Rs. 450
Interest on capital		Rs. 4,050

Interest on Akbar’s capital:

On opening capital for 1 year	40,000 \(\times\) \(\frac{6}{100}\)	Rs. 2,400
On additional capital for 6 months	5,000 \(\times\) \(\frac{6}{100}\) \(\times\) \(\frac{6}{12}\)	Rs. 150
Interest on capital		Rs. 2,550

Note: Since the date of additional capital introduced by Akbar is not given, interest on additional capital is calculated for an average period of 6 months.

18.

Calculation of interest on capital:
Interest on capital = Amount of capital \(\times\) Rate of interest
Interest on Mannan’s capital = 80,000 \(\times\) 5/100 = Rs. 4,000
Interest on Ramesh’s capital = 60,000 \(\times\) 5/100 = Rs. 3,000
Note: Balance of current account will not be considered for calculation of interest on capital.

Date	Particulars		Debit Rs.	Credit Rs.
2018	Interest on capital A/c	Dr.	7,000
March 31	To Mannan’s current A/c			4,000
	To Ramesh’s current A/c (Interest on capital provided)			3,000
"	Profit and loss appropriation A/c	Dr.	7,000
	To Interest on capital A/c (Interest on capital closed)			7,000