Accounting for Partnership Firms - Fundamentals Important Questions

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Questions:

Generic 3

12 x 3 = 36

A partnership firm earned the following net profits during the last three years.
2013 - Rs.34,000, 2014 - Rs.40,000, 2015 - Rs.46,000
The capital investment in the firm throughout the above mentioned period has been Rs.1,60,000. having regard to the risk involved, 15% is considered to be fair return on the capital.calculate value of goodwill on the basis of two year's purchases of average super profit earned during the above mentioned three years.

A, B and C are partners in a firm. They contributed Rs.75,000 each, as capital three years ago.At that time C agreed to look after the business as A and B were busy. The profits for the past three years were Rs.45,000, Rs.30,000 and Rs.60,000 respectively. While going through the books of accounts, A noticed that profit had been distributed in 1 : 1 : 2 ratio.When he enquired from C about this, C answered that, since he looked after the business he should get more profit.A disagreed and it was decided to distribute profits equally with retrospective effect for the last three years.
(i) You are required to make necessary correction in the book of accounts of A, B and C by passing an adjustment entry
(ii) Identify the value which is being ignored by C.

X and Y started business of recycling the old furniture and refurbishing them for sale on 1st July 2017, each partner contributing Rs.1,50,000 as his share of capital. On 1st October, Y makes an additional contribution of Rs.1,00,000 which is treated as a loan.The profit for the period ending March 2018 was Rs.85,000 before charging any interest.All the partners were entitled to a salary of Rs.3,000 each, per quarter the partners had drawn Rs.24,000 each on 1st January, 2015. Prepare the profit and loss appropriation account for the period ended 31st March, 2018 . Identify the values involved in the above question.

Suresh and Ramesh are partners in a firm with capitals of Rs.3,00,000 and Rs.4,00,000 respectively. they do not have a partnership deed. Ramesh wants to share the profits in the ratio of capital. State with reason Wheather the claim is valid.

A and B were partners sharing profits in the ratio of 3 : 2. The accountant prepared Profit and Loss Account, Profit and Loss Appropriation Account and Partners' Capital Accounts, but forgot to post few amounts in these accounts. You are required to complete these below given amounts by posting correct amounts:
Profit and Loss A/c
for the year ended 31st March, 2015
Dr. Cr.

Particulars		Rs.	Particulars		Rs.
To Interest on A's Loan		900	By Profit for the year		......
		......
	Total	......		Total	......

Particulars		Rs.	Particulars		Rs.
To Interest on Capital @ 5% p.a. :			By Profit as per Profit and Loss A/c		.....
A	2,500		By Interest on Drawings A/c :
B	2,000	.....	A	120
To Salary A/c			B	80	200
A	24,000
B	12,000	......
To Divisible Profit transferred to Capital A/cs :
A 3/5	17,280
B 2/5	.......	......
Total		69,300	Total		69,300

Dr. Partners' Capital A/c Cr.

Particulars	A Rs.	B Rs.	Particulars	A Rs.	B Rs.
To Drawings A/c	6,000	4,000	By Balance b/d	.....	.....
To Interest on Drawings A/c	.....	.....	By Interest on Capital A/c	.....	.....
To Balance c/d	.....	.....	By Salary A/c	.....	.....
			By Profit and Loss Appropriation A/c	.....	.....
Total	.....	.....	Total	.....	.....

A, B and C were parners in a firm. They had no partnership deed. They had been in business for 4 years and their Profit or Loss for this period was : Year ending March 2004 Rs. 39,000, March 2005 Rs. 54,000, March 2006 Rs. 18,000 (loss) and March 2007 rs. 75,000. During the year 2007 - 08, they agreed to share profits and losses in the ratio of 2 : 2 : 1 with retrospective effect from the year 2003 - 04. It was also decided that an interest (charge) of 5% p.a. was to be provided on capitals (fixed). Their capitals were Rs. 80,000, Rs. 60,000 and Rs. 60,000 respectively. Pass a single adjustment entry to adjust the capital accounts of the partners.

Ram and Shyam were partners in a firm sharing profits in the ratio of 3 : 5. Their fixed capitals were : Ram Rs. 5,00,000 and Shyam Rs. 9,00,000. After the accounts of the year had been closed, it was found that interest on capital at 10% per annum as provided in the partnership agreement has not been credited to the Capital to the Capital Accounts of the partners. Pass a necessary entry to rectify the error.

Asgar, Chaman and Dholu are partners in a firm. Their capital accounts stood at Rs. 6,00,000; Rs. 5,00,000 and Rs. 4,00,000 respectively on 1st April, 2011. They shared profits and losses in the proportion of 4 : 2 : 3. Partners are entitled to interest on capital @ 8% per annum and salary to chaman and Dholu @ Rs, 7,000 per month and Rs. 10,000 per quarter respectively as per the provision of the partnership deed.

A, B & C were partners in a firm. On 1st April 2012, their capitals stood at Rs. 5,00,000; Rs. 2,50,000 and Rs. 2,50,000 respectively. As per the provisions of the partnership deed :
(i) C was entitled for a salary of Rs. 5,000 per month.
(ii) A's was entitled for a commission of Rs. 80,000 p.a.
(iii) Partners were entitled to interest on capital at 6% p.a.
(iv) Partners will share profits in the ratio of their capitals.
Net profit for the year ended on 31.03.2013 was Rs. 3,00,000 which was divided equally, without providing for the above provisions. Showing your workings clearly, pass necessary adjustment entry for the above.

10.

Arun and Arora were partners in a firm sharing profits in the ratio of 5 : 3. Their fixed capitals as on 1.4.2010 were : Arun Rs. 60,000 and Arora Rs. 80,000. They agreed to allow interest on capital @ 12% p.a. and to charge on drawings @ 15% p.a. The profit of the firm for the year ended 31.3.2011 before all above adjustment were Rs. 12,600. The drawings made by Arun were Rs. 2,000 and by Arora Rs. 4,000 during the year. Prepare Profit and Loss Appropriation Account of Arun and Arora. Show your calculations clearly. The interest on capital will b allowed even if the firm incurs loss.

11.

D, E and F were partners in a firm sharing profits in the ratio of 5 : 7 : 8. Their fixed capitals were D Rs. 5,00,000, E Rs. 7,00,000. and F Rs. 8,00,000. Their partnership deed provided for the following :
(i) Interest on capital @ 10% p.a
(ii) Salary of Rs, 10,000 per month of F.
(iii) Interest on drawings @ 12% p.a.
D withdrew Rs. 40,000 on 31st January, 2009; E withdrew Rs. 50,000 on 31st March, 2009 and F withdrew Rs. 30,000 on 31st December, 2009.
During the year ended on 31st December, 2009 the firm earned a profit of Rs. 3,50,000.
Prepare the Profit and Loss Appropriation Account for the year ended 31st December, 2009.

12.

Sharma and Verma were partners in a firm sharing profits in the ratio of 4 : 1. Their capitals on 01- 04 -2006 were Sharma Rs. 5,00,000 and Verma Rs. 1,00,000. The partnership deed provided that Sharma will get a commission of 10% on the profit after allowing a salary Rs. 5,000 per month to Verma. The profit of the firm for the year ended 31st March, 2007 was Rs. 2,80,000.
Prepare Profit and Loss Appropriation Account of Sharma and Verma for the year ended 31.03.2007.

1 Marks

6 x 1 = 6

13.

How does the market situation affect the value of goodwill of a firm ?

14.

How does the factor 'location' after the goodwill of a firm ?

15.

The partnership deed is silent on payment of salary to partners. Amita, a partner, claimed that since she managed the business, she should get a monthly salary of Rs 10,000. Is she entitled for salary? Give reason.

16.

List two items that may appear on the credit side of a partner's fixed capital account.

17.

A, B and C are partners decided that no interest on drawings is to be charged to any partner. But after one year 'C' wants that interest on drawings should be charged to every partner. State how 'C' can do this.

18.

A Partnership deed provides for the payment of interest on capital but there was a loss instead of profits during the year 2010-2011. At what rate will the interest on capital be allowed ?

Generic 6

4 x 6 = 24

19.

P, Q and R entered into a partnership on 1st October, 2017 to share the profit and losses in the ratio of 5:3:2. the total capital was fixed at Rs.18,00,000 to be contributed by P, Q and R in the ratio of 4:3:2. P granted a loan of Rs.1,00,00 on 1st January, 2018. the partnership deed provided for interest on capital @10% per annum, interest on drawings @12% per annum, salary to Q.Rs.6,000 per month and salary to R @ Rs.6,000 per quarter.Q's drawings during the period ended 31st March , 2018 were Rs.50,000
The profits of the firm for the period ended 31st March 2018 before providing for any interest and salary were Rs.2,16,000
Prepare profit and loss appropriation account.

20.

Raj and Vijay are partners in a firm. Raj has given a loan of Rs.9,600 to the firm on 1st July. the partnership deed is silent upon the question of provision of interest on partner's loan. Compute the amount on interest payable on the books are closed on 31st March every year.

21.

J and L started business on 1st January, 2017 with the capitals of Rs.1,20,000 and Rs.80,000. respectively. J introduced Rs.50,000 to the firm on 1s July, 2017 as additional capital and on the same date he withdrew. His drawing for the year were Rs.20,000 from his capital. Calculate interest on capital payable to J and L, if interest is allowed @15% per annum.

22.

L and M are partners sharing profits equally, L withdrew regularly Rs 8,000 in the beginning of every month for six months ended 30th September 2017. Calculate interest on drawings @5% per annum

Generic 8

1 x 8 = 8

23.

Saloni and Srishti are partners in a firm. Their capital accounts as at 1st April, 2017 showed a balance of Rs.2,00,000 and Rs.3,00,000 respectively. on 1st July, 2017, Saloni introduced additional capital of Rs.50,000 and Srishti Rs.60,000. On 1st October, 2016, Saloni withdrew Rs.30,000 and on 1st January, 2017, Srishti withdrew Rs.15,000 from their Capital. interest is allowed @8% per annum. Calculate interest payable on capital to both the partners during the financial year 2017 - 2018.

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Answers Key:

Generic 3

12 x 3 = 36

Goodwill = rs.32,000

Debit C with Rs. 2,500 and credit A and B with Rs.11,250 each.

profit transferred to capital account: X = Rs.32,000

According to Indian Partnership Act, 1932, in the absence of partnership deed, profits are shared equally among the partners. So, the claim of Ramesh to share the profits in the ratio of capital in not valid.

Stepwise working notes:
(a) Calculation of divisible profit, B's share of Profit and Profit for the year :
(i) As A's share of profit 3/5 and his share is Rs. 17,280.
So, total profit of the firm = Rs. 17,280 \(\times\) 5/3 = Rs. 28,800
Thus, B's share of Profit = Rs. 28,800 \(\times\) 2/5 = Rs. 11,520.
(ii) Net profit as per Profit and Loss A/c and balancing figure of Profit and Loss Appropriation A/c Rs. 69,100 [i.e. Rs. 69,300 - Rs. Rs. 200].
(iii) Net profit Rs. 69,100 transferred to Profit and Loss A/c and balancing figure of Profit and Loss A/c Rs.70,000 is profit for the year.
(b) Calculation of Partners' Capital :
(i) As interest on A's Capital @ 5% = Rs. 2,500.
So, A's Capital = Rs. 2500 \(\times\) 100/5 = Rs. 50,000
(ii) As interest on B's Capital @ 5% = Rs. 2,000.
So, B's Capital = Rs. 2000 \(\times\) 100/5 = Rs. 40,000
(iii) Remaining blanks is filled up with help of profit and Loss Appropriation and Balance of Closing Capital: A Rs. 87,660 and B Rs. 61,440.

Dr. C's Current A/c Rs. 19,000; Cr. A's Current A/c Rs. 9,000.

	Rs.
Interest on Ram's Capital of Rs.5,00,000 @ 10%	50,000
Interest on Shyam's Capital of Rs.9,00,000 @ 10%	90,000
Total interest to be allowed	1,40,000

Profit already distributed 140000 in the ratio 3 : 5 i.e 52500 and 87500 the difference is 2500. The entry is
Ram A/C Dr 2500
To Shyam A/C 2500

Divisible Profit Rs. 1,80,000 being Asgar's share Rs. 70,000 (i.e., Rs 80,000 - Rs. 10,000), Chaman Rs. 40,000 and Dholu Rs.70,000 (i.e., Rs. 60,000 + Rs. 10,000).

Dr. B's Capital A/c; Cr. A's Capital A/c Rs. 60,000.

10.

Divsible loss Rs. 3,750 being Arun's share Rs. 2,344 and Arora's share Rs. 1,406.
(i) As interest on capital is charged against profit, so loss will be the shared by partners.
(ii) In the absence of information, interest on drawings will be calculated for 6 months.

11.

Interest on Drawing D Rs. 4,400, E Rs 4,500 and F Nil; Divisible Profit Rs. 38,900 transferred to D's current A/c Rs 9,725, E's Current A/c Rs 13,615 and F's Current A/c Rs 15,560.

12.

Divisible Profit Rs.1,98,000 transferred to Sharma's Capital Rs.1.58,400 and Verma's Capital Rs.39,600.

1 Marks

6 x 1 = 6

13.

()
The monopoly conditions or limited compettion enables the businbess to earn profits, which increases the value of goodwill.

14.

()
Favourable location of a business will attract more customers, result in higher sales and therefore, has leads to higher profits and therefore, has more value of goodwill.

15.

()
As in the absence of partnership deed, no partner is allowed to get salary, so Amita is not entitled for salary.

16.

()
(i) Opening capital balance (ii) Additional capital introduced.

17.

()
C can only do this if all other partners A and B agreed.

18.

()
No interest on capital will be allowed as there was loss in the firm.

Generic 6

4 x 6 = 24

19.

Profit transfered to:
P's current account = Rs.39,000
Q's current account = Rs.23,400
R's current account = Rs.15,600

20.

Interest on loan payable to Raj = Rs.432

21.

J = Rs.20,520 L = Rs.12,000

22.

Interest on drawings = Rs 700

Generic 8

1 x 8 = 8

23.

Statement Showing Calculation of Interest on Capital :

For Saloni		(Rs)
Interest on Rs.2,00,000 for 3 months	\(\frac{R s .2,00,000 \times 8 \times 3}{100 \times 12}\)	4,000
(+) Intrest on Rs.2,50,000 for 3 months	\(\frac{R s .2,50,000 \times 8 \times 3}{100 \times 12}\)	5,000
(+) Intrest on Rs.2,20,000 for 6 months	\(=\frac{R s .2,20,000 \times 6 \times 8}{100 \times 12}\)	8,800

Alternative, interests can be calculated on Rs.2,00,000 for 3 months, on Rs.2,50,000 for 3 months and on Rs.2,20,000 for 6 months(Rs.4,000 + Rs.5,000 + Rs.8,800 = Rs.17,800).

For Srishti		(Rs)
Interest on Rs.3,00,000 for 3 months	\(\frac{R s .3,00,000 \times 8 \times 3}{100 \times 12}\)	6,0300
(+) Intrest on Rs.60,000 for 9 months	\(=\frac{R s .3,60,000 \times 8 \times 6}{100 \times 12}\)	14, 400
(+) Intrest on Rs.15,000 for 3 months	\(\frac{R s .3,45,000 \times 8 \times 3}{100 \times 12}\)	300

Alternative, interests can be calculated on Rs.3,00,000 for 3 months, on Rs.3,60,000 for 6 months and on Rs.3,45,000 for 3 months(Rs.6,000 + Rs.14,400 + Rs.6,900 = Rs.27,300).