CHAPTER-1

Accounting for Partnership Firms- Fundamental

CONTENTS & SYLLABUS TO BE TAUGHT
Units/Topics Learning Outcomes
 Partnership: features, Partnership After going through this Unit, the
Deed. students will be able to:
 Provisions of the Indian Partnership  state the meaning of
Act 1932 in the absence of partnership partnership, partnership firm
deed. and partnership deed.
 Fixed v/s fluctuating capital  describe the characteristic
accounts. Preparation of Profit and features of partnership and the
Loss Appropriation account- division contents of partnership deed.
of profit among partners, guarantee of  discuss the significance of
profits. provision of Partnership Act in
 Past adjustments (relating to interest the absence of partnership deed.
on capital, interest on drawing, salary  differentiate between fixed and
and profit sharing ratio). fluctuating capital, outline the
Note: Interest on partner's loan is to process and develop the
be treated as a charge against profits understanding and skill of
preparation of Profit and Loss
Appropriation Account.
 develop the understanding and
skill of preparation profit and
loss appropriation account
involving guarantee of profits.
 develop the understanding and
skill of making past adjustments.
Meaning and Definition of Partnership –
According to Section 4 of the Partnership Act 1932 “Partnership is the relation between persons who
have agreed to share the profits of a business carried on by all or any of them acting for all”
Features of partnership Firm:
(1) Association of two or more persons: There must be at least two and maximum 50 persons can
be the member of partnership firm according to Indian Companies Act 2013
(2) Agreement: It is an agreement between two separate entities who are competent to enter into
a contract.
(3) Legal business: As per the sec. 4 of the partnership “Partnership can be framed only for a
purpose of carrying lawful business.
(4) Profit sharing: Partnership agreement aims to sharing profit of the firm as per deed. If some
persons come together for a charitable activity, it doesn’t amount to partnership.
(5) Mutual agency: Partnership business may carried by all the persons or by any of them acting
for all. Each partner whether participating or not liable for all liability and losses.

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Partnership Deed:
“Partnership Deed is the written or Oral agreement among the partners, which contains terms &
conditions of the partnership Firm”.
It generally contains the details about all the aspects affecting the relationship between the partners
including the objective of business, contribution of capital by each partner, ratio in which the profits
and the losses will be shared by the partners and entitlement of partners to interest on capital,
interest on loan, etc.
Provisions of Partnership Act, 1932 in the absence of Partnership Deed:
a) Profit Sharing Ratio-: If the partnership deed is silent about the profit-sharing ratio, the profits and
losses of the firm are to be shared equally by partners
b) Interest on Capital: - No interest on capital is payable if the partnership deed is silent on the issue.
c) Interest on Drawings: - No interest is to be charged on the drawings made by the partners, if there
is no mention in the Deed.
d) Interest on Advances: - If any partner has advanced some money to the firm beyond the amount of
his capital for the purpose of business as a loan, he/she shall be entitled to get an interest on the
amount @ 6% p.a.
e) Remuneration/Salary/Bonus/Commission for Firm's Work: - No partner is entitled to get
salary/Bonus/Commission or other remuneration for taking part in the conduct of the business of the
firm.
f) Partners Used Firm’s Amount for his/her personal Business-:- In this case the amount with profit
will be return to the firm by the partner. But in case of loss, it must be bear by the partner
himself/herself only principal amount will be return by the partner to the firm.
g) Admission of a partner: - A new partner can be admitted in the firm if all the partners are agreed. If
any one partner is disagreeing the new partner can not be admitted in the firm.
h) Purchase/Sale of Assets/Goods:- Any Assets/Goods can be purchased /Sale if majority of partners
are agreed.
Maintenance of Partners Capital Account
Partners’ Capital A/c can be maintained by two methods
1. Fixed capital method In fixed capital method two accounts are prepared apart from Profit &
loss Appropriation Account

(a) partners’ capital account (b) partners’ current account

Dr. Partners’ Capital Account Cr.

Date Particulars J.F. Amoun Date Particulars J.F. Amount
t
(Rs.) (Rs.)
To Bank A/c(permanent xxx By Balance b/d xxx

withdrawal of capital) (opening balance)

To Balance c/d xxx By Bank A/c xxx
(closing balance) (fresh capital
introduced)
xxx xxx

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Dr. Partners’ Current Account Cr.
Date Particulars J.F. Amoun Date Particulars J.F. Amount
t
(Rs.) (Rs.)
To Drawings xxx By Balance b/d xxx

To Interest on drawings xxx By Salaries/Commission xxx

To Profit and Loss xxx By Interest on capital xxx
Appropriation A/c xxx By Profit and Loss
(Partner’s
share of loss) Appropriation A/c
To Balance c/d xxx (Partner’s share of xxx
profit)
xxx xxx

2. Fluctuating capital method:- while in fluctuation method only one Capital account is prepared
apart from Profit & Loss Appropriation Account
Dr. Partner’s Capital Account Cr.
Date Particulars J.F Amoun Date Particulars J.F. Amount
. t
(Rs.) (Rs.)
To Drawings xxx By Balance b/d xxx
To Bank (permanent xxx By Bank (fresh capital
withdrawal of introduced)
capital)
To Interest on xxx By Salaries/Commission xxx
drawings
To Profit and Loss xxx By Interest on capital xxx
Appropriation A/c By Profit and Loss xxx
(for share of loss) Appropriation
A/c
To Balance c/d (for share of profit)
Date xxxx xxxx
Distribution of Profit among Partners
The profits and losses of the firm are distributed among the partners in an agreed ratio. However,
if the partnership deed is silent, the firm's profits and losses are to be shared equally by all the
partners.

You know that in the case of sole partnership the profit or loss, ascertained by the profit and loss
account is transferred to the capital account of the proprietor. In case of partnership, however,
certain adjustments such as interest on drawings, interest on capital, salary to partners, and
commission to partners are required to be made. For this purpose, it is customary to prepare a

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 Profit and Loss Appropriation Account of the firm and as certain the final figure of profit and loss
to be distributed among the partners, in their profit sharing ratio.

The Proforma of Profit and Loss Appropriation Account is given as follows:

Dr. Profit and Loss Appropriation Account Cr.

For the year ended-----
Particulars Amount Particulars Amount
(Rs.) (Rs.)
To Profit and Loss A/c xxx By Profit and Loss A/c xxx
(if there is loss) (if there is profit)
To Interest on Capital A/c xxx By Interest on Drawings xxx
To Salary/Commission to Partner By Partners' Cap A/cs or
A/c Current A/cs
To General Reserve A/c xxx (distribution of loss) xxx
To Partners' Cap A/cs or xxx
Current A/cs (Distribution of
Profit)

xxxx xxxx

*Note: Interest on partner's loan is to be treated as a charge against profits.

Past Adjustments
If after closing the accounts for the year it is the discovered that some errors have been
committed, then these errors have to be rectified. Some adjustment entries have to be passed to
rectify the error. The entries are made through Profit & Adjustment A/c. These entries are to
rectify the errors committed in past, therefore, they are known as 'Past Adjustments'. Generally
the following types of errors are committed:
(i) Interest on Capital and on Drawings have been omitted.
(ii) Interest on Capital and on Drawings have been provided at higher or lower rates than the
rates agreed in the Deed.
(iii) Salary or commission to partners either not given or a higher or lower amount has been
given.
(iv) Profit shared in a wrong ratio.

ADJUSTMENT TABLE
Particulars A B C Firm
Profit already distributed (-) (-) (-) (+)
Interest on Capital (+) (+) (+) (-)
Partner's Salary/Commission (+) (+) (+) (-)
Interest on Drawings (-) (-) (-) (+)
Profit/Loss To be Distributed (Balance) (+)/(-) (+)/(-) (+)/(-) (+)/(-)

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 Note – (+) means Cr the partner's capital A/c, (-) means Dr the partner's capital A/c

Note: Similarly following errors can be rectified accordingly:

(i) Interest on Capital and on Drawings have been provided at higher or lower rates
than the rates agreed in the Deed
(ii) Salary or commission to partners either a higher or lower amount has been given.
Guarantee of Profit to a Partner
Guarantee of profit means a minimum amount of profit to be paid to a partner. This amount shall
be given to him if his share of profit is lower than the guaranteed amount. The deficit shall be
borne either by one of the old partners or by all the old partners in a particular agreed ratio. If
there is no agreement, then in their old profit sharing ratio, if his actual share of profit is more
than the guaranteed amount, then, he will be given his actual share of profit. He gets the
guaranteed amount or the actual share of profit, whichever is higher.

(a) Guarantee given by all partners

(i) Compare the amount of guarantee and his actual share of profit. If guaranteed
amount is more than his actual share of profit, then the guaranteed amount will be
debited to profit and loss Appropriation Account and the partner's account will be
credited with the guaranteed amount.
(ii) The deficiency shall be shared by other partners in their profit sharing ratio.
(b) Guarantee given by One Partner only
First calculate his share of profit. Compare it with the guaranteed amount. The amount of deficiency
is to be charged from the partner who gave guarantee.
(c)Guarantee given to a partner by other partners in a ratio different from their profit sharing ratio
Distribute profit among all the partners in the profit-sharing ratio. Work out the amount of
deficiency by comparing it with the guaranteed amount and his actual share of profit. The other
partners will bear the deficiency in an agreed new ratio.
Calculation of Interest on Drawings Formulas in various conditions
1. If a partner withdraws If a partner withdraws If a partner withdraws
fixed amount at the fixed amount at the fixed amount at the
beginning of the every middle of the every end of the every
month month month
Interest on Drawings = Total Interest on Drawings = Interest on Drawings =
Drawings x Rate of Total Drawings x Rate Total Drawings x Rate
Interest /100 x 6.5/12 of Interest /100 x 6/12 of Interest /100 x
5.5/12
2. If a partner If a partner withdraws If a partner withdraws
withdraws fixed fixed amount at the fixed amount at the
amount at the middle of the each end of the each
beginning of each quarter quarter
quarter
Interest on Drawings = Total Interest on Drawings = Interest on Drawings =
Drawings x Rate of Total Drawings x Rate Total Drawings x Rate
Interest /100 x 7.5/12 of Interest /100 x 6/12 of Interest /100 x

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 4.5/12
3. If a partner If a partner withdraws If a partner withdraws
withdraws fixed fixed amount during six fixed amount during
amount during six months at the middle six months at the end
months at the of each month of each month
beginning of each
month
4. Interest on Drawings Interest on Drawings = Interest on Drawings =
= Total Drawings x Total Drawings x Rate Total Drawings x Rate
Rate of Interest /100 of Interest /100 x 3/12 of Interest /100 x
x 3.5/12 2.5/12
5.If amount withdrawn by partners at different dates in this condition product
method will be applied
Formula for calculation interest on Drawings = Total of Product x Rate /100 x 1/12
6. If per annum word is not given after rate of interest and date of Drawing is not
given the interest will be calculate for the full year.
7. If per annum word is given after the rate of Drawings but date of drawing is not
given in that case interest on Drawings will calculate of half period means six
months. Formula Interest on Drawings = Drawings x Rate of Interest /100 x 6/12
Journal Entries
Date Particulars Dr. Cr.
1 For transfer of profit from P&L A/c:
P & L A/c Dr.
To P&L Appropriation A/c
In case of loss:
P & L Appropriation A/c Dr.
To P&L A/c
2 Interest on Capital:
Interest on Capital A/c Dr.
To Partners Capital/ Current A/c
For transferring to P&L Appropriation A/c:
P & L Appropriation A/c Dr.
To Interest on capital A/c
3. Salary:
Salary A/c (individually) Dr.
To Partners Capital/ Current A/c
For transferring to P&L Appropriation A/c
P & L Appropriation A/c Dr.
To Salary A/c (individually)
4. Commission to partners:
Commission A/c (individually) Dr.
To Partners Capital/ Current A/c
For transferring to P&L Appropriation A/c:
P & L Appropriation A/c Dr.
To Commission A/c (individually)
5 Interest on drawings:
Partners‘ Capital/Current A/c Dr.
To Interest on Drawings

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 For transferring to P&L Appropriation A/c:
Interest on Drawings A/c Dr.
To P & L Appropriation A/c
6 Sharing of profit or loss after appropriations In case of Profits:
P & L Appropriation A/c Dr.
To Partners Capital/ Current A/c (individually)
In case of losses:
Partners‘ Capital/ Current A/c Dr.
To P & L Appropriation A/c
PRACTICAL PROBLEMS TOPIC WISE
Provisions of Partnership Act, 1932 in the absence of Partnership Deed:
Q.1 A and B are partners but they do not have partnership agreement. How will they solve the
following disputes between them?
(a) A wants that profits be shared in the ratio of Capital.
(b) B wants that he should be paid salary for devoting more time for the business of the firm.
(c) B had advanced a loan to the firm. He claims interest at the usual interest rate charged by
banks. The rate of interest is 13% p.a.
(d) A has contributed Rs.1,00,000 and ‘B’ Rs.50,000 as capital. ‘B’ Wants profit to be shared
equally.
(e) ‘A’ invested Rs.1,00,000 and ‘B’ only Rs.50,000 as capital. ’A’ wants interest on capital
@12% p.a.
(f) ‘A’ spends twice the time that ‘B’ devotes to the business. He wants salary of Rs. 2000 per
month for the extra time spent by him.
(g) ‘A’ wants to introduce his son Rajesh in to the business. ‘B’ objects it.
(h) ‘A’ used Rs. 1,00,000 belonging to the firm and made a profit of Rs. 75,000 in speculation.
‘B’ wants that ‘A’ should return Rs. 1,75,000 to the firm while ‘A’ wants to return Rs. 1,00,000
only.
(i) ‘A’ used Rs. 50,000 belonging to the firm and suffered a loss of Rs. 20,000 in speculation.
He wants to return only Rs.30,000.
Q.2 ‘A’ ,’B’ and ‘C’ are partner in a firm. ‘A’ and ‘B’ want admit Mohan as a partner but ‘C’ does
not agree.
Q.3 ‘A’ and ‘B’ want to purchase goods from Raghubir but ‘C’ is not agree.
CALCULATION OF INTEREST ON CAPITALS
Q.4 Girish and Satish are partners in firm. Their capitals on 1 st April 2013 were Rs.5,60,000 and Rs.
4,75,000 respectively. On 1st August 2023 they decided that their capitals should be
Rs.5,00,000 each. The necessary adjustment in the capitals were made by introducing or
withdrawing cash. Interest on capital is allowed @6% p.a. You are required to compute
interest on capital for the year ending 31st March 2014.
Q.5 X,Y,and Z are partners in a firm. Their capitals as on 1 st April 2013 were Rs.5,00,000,
Rs.4,00,000 and R. 3,00,000 respectively. On 1 st July 2013 they introduced further capitals of
Rs. 1,00,000, Rs. 80,000 and Rs. 50,000 respectively. On 1 st February 2014 ‘Y’ withdrew
Rs.15000 form his capital. Interest is to be allowed @8% p.a. on the capitals. Compute
interest on capitals for the year ending 31st March2014.
Q.6 On 31st March 20024 after the close of accounts the capitals of Mountain, Hill and Rock stood
in the books of the firm at Rs.4.00,000, Rs.3,00,000 and Rs.2,00,000 respectively.
Subsequently it was discovered that the interest on capitals @ 10% p.a. had been omitted.

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 The profit for the year amounted to Rs.1,50,000 and the partner’s drawings had been
Mountain Rs.20,000, Hill Rs.15,000 and Rock Rs.10,000. Calculate interest on Capitals.
Q.7 From the following Balance sheet of Long and short calculate interest on capitals @8% p.a.
for the year ended 31st March 2012
Liabilities Amount(Rs.) Assets Amount(Rs.)
Long’s Capitals 1,20,000 Fixed assets 3,00,000
Short’s Capitals 1,40,000 Other assets 60,000
General Reserve 1,00,000
3,60,000 3,60,000

During the year Long’s drawings were Rs.40,000 and Short’s drawings were Rs. 50,000. Profit
for the year was Rs.1,50,000.Out of which Rs.1,00,000 was transferred to General Reserve.
CALCULATION OF INTEREST ON DRAWINGS
Q.8 X, Y and Z are partners in a firm. You are informed that –
(a) ‘X’ draws Rs.4, 000 from the firm at the first day of every month.
(b) ‘Y’ draws Rs.4, 000 from the firm at the end of the month.
(c) ‘Z’ draws Rs. 4,000 from the firm in the middle of the month
Calculate interest on Drawings if rate of interest is @ 9% p.a.
Q.9 Calculate the interest on drawings of Mr. Aditya @8% p.a. for the year ended 31 st March
2023, in each of the following cases –
(a) If he withdrew Rs.5,000 in the beginning of each quarter.
(b) ) If he withdrew Rs.6,000 at the end of each quarter.
(c) ) If he withdrew Rs.10,000 during the middle of each quarter.
Q.10 Gupta is a partner in a firm. He withdrew regularly Rs. 800 at the beginning of the every
month for the six months ending 30 th September 2023 Calculate interest on drawings at 15%
p.a.
Q.11 Gupta is a partner in a firm. He withdrew regularly Rs. 800 at the end of the every month for
the six months ending 30th September 2023 Calculate interest on drawings at 15% p.a.
Q.12 A is a partner in a firm. During the year ended 31st March 2024 A’s Drawings were-
Date and Month Amount of drawings (Rs.)
st
1 June 1,000
1st August 750
st
1 October 1,250
st
1 December 500
st
1 February 500

Interest on drawings is charged @10% p.a. Calculate interest on drawings of A for the year
ended 31st March 2024.
Maintenance of Profit/Loss Appropriation Account & Partners Capital Account
Q.13 Read the following hypothetical situation, & Fill the blank Puneet and Raju are partners in a
clay toys making firm. Their capitals were Rs. 5,00,000 and `Rs.10,00,000 respectively. The
firm allowed Puneet to get a commission of 10% on the net profit before charging any
commission and Raju to get a commission of 10% on the net profit after charging all
commission. Following is the Profit and Loss Appropriation Account for the year ended 31st
March 2022.
Profit and Loss Appropriation Account

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Dr for the year ended 31st March 2022 Cr.
Particulars Amount Particulars Amount
(Rs.) (Rs.)
To Puneet’s Capital A/c 44,000 By Profit and Loss A/c ------------
(Commission)
To Raju’s Capital A/c (Commission) ----------
To Profit share transferred to :- ----------
Puneet’s Capital A/c
Raju’s Capital A/c ----------
---------- -----------

Prepare Profit and Loss Appropriation Account and Partners Capital account.
Q.16 A and B are partners sharing profits in the ratio of 3 : 2. Interest on Capital is allowed
@10% p. a. and charged on drawings at the same rate. Fill up the missing figures in the
following accounts –

Profit and Loss Appropriation Account

Dr. For the year ended 31st March 2015 Cr.
Particulars (Dr) Amount(Rs.) Particulars (Cr.) Amount(Rs.)
To Salary to B ------------ By Profit and -------------
Loss A/c
To Interest on Capitals -------------
A ----------------------
B ----------------------
To Partners’ Current By Interest on
Account : Drawings
------------ 1,20,000 A- 2,500 --------------
------------ B- 1,500
-------------- 2,84,000

Dr. Partners’ Capital Accounts Cr.

Particulars A (Rs.) B (Rs.) Particulars A (Rs.) B (Rs.)
To -------------- ---------- ---------- By --------------- -----------
-------------------
--------- ---------- --------------- -----------

Dr. Partners’ Current Accounts Cr.

Particulars A (Rs.) B (Rs.) Particulars A (Rs.) B (Rs.)
To ---------------- ---------- -------- By Balance b/d 16,000 22,000
--
To ---------------- ---------- -------- By ---------------- ---------
--
To ---------------- ---------- -------- By Int. on 80,000 60,000
-- Capitals

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 By ---------------- ---------- ---------
---------- -------- --------- --------
-
Q.14 Lata and Mamta are partners with capitals of Rs.3, 00,000 and Rs. 2, 00,000 respectively.
Sharing profits and losses Lata 70% and Mamta 30%. During the year ended 31 st March 2005
they earned a profit of Rs.2,26,440 before allowing interest on partner’s Loan. The terms of
partnership are as follows

(a) Interest on Capitals is to be allowed @7% p.a.

(b) Lata to get a salary of Rs. 2,500 p.m.
(c) Mamta’s Loan of Rs.80,000 for whole year.
(d) Interest on Drawings of partners @ 8% p.a. Drawings being Lata Rs. 36,000 and Mamta
Rs.48, 000.
(e) 1/10th of the distributable profit should be transferred to General Reserve.

Q.15 Y and Z are partners with capitals of Rs. 25,000 and Rs.15,000 respectively on 1 st April 2022.
Each partner is entitled to 9% p.a. interest on his capital. Z is entitled to a salary of Rs. 6,000
per annum together with a commission of 6% of Net Profit remaining after deducting interest
on capitals , salary and commission. The profits for the year ended 31st March 2023 before
making any of the above-mentioned adjustments amount to Rs.30,800.
Prepare Profit & Loss Appropriation Account & Necessary accounts if capitals are Fixed.
PAST ADJUSTMENTS
Q.17 A, B and C are partner in a firm. After the accounts of the partnership have been drawn up
and the books closed off. It is discovered that interest on capitals @8% p.a. as provided in the
partnership agreement has been omitted to be recorded. Their capital accounts at the
beginning of the year as follows- A- Rs.80,000 , B- Rs. 40,000 , C- Rs. 30,000. Their profit
sharing ratio was 2 : 1 : 1. Instead of altering the balance sheet it is decided to pass necessary
adjusting entry at the beginning of the next year.
Practice Questions
Q.18 A, B and C are partner in a firm. On 1st April 2002 their capital accounts stood at- A-
Rs.12,000 , B- Rs. 7,000 , C- Rs. 5,000. Their profit sharing ratio was 5 : 4 : 3and that interest
shall be allowed on capitals after closing the accounts on 31st March 2003 it was discovered
that interest has not been allowed on capitals A proposes @5% to which B and C agrees. pass
necessary adjusting entry at the beginning of the next year.
Q.19 A, B and C are partners sharing profits in the ratio of 1 : 2 : 3 They have been omitted interest
on capitals @8% p.a. for year ended 31 st March 2008 Their Fixed capitals were Rs.4,00,000 ,
Rs 6,00,000 and Rs. 8,00,000 respectively.
Pass necessary adjusting entry.
Q.20 A, B, C, and D are partners sharing profits and losses in the Ratio of 2 : 2 : 3 : 3 respectively.
After the accounts of the year had been closed it was found that interest on drawings @6%
p.a. has not been taken into consideration. The drawing of the partners were A- Rs. 20,000, B-
Rs. 24,000, C- Rs. 32,000 and D- Rs. 44,000. Give the necessary adjusting entry.
Q.21 Anil, Sunil and Sanjay have been omitted interest on capitals for two years ended on 31 st
March 2014. Their fixed Capitals in two years were Anil Rs. 80,000 , Sunil Rs. 70,000 and
Sanjay Rs. 30,000. Rate of interest on capital is 10% p.a. Their profit sharing ratios were in first
year 4 : 3 : 2 and in second year 3 : 2 : 1.

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 Give necessary adjusting entry at the beginning of the next year.
Q.22 P , Q and R are partners sharing profits in the ratio of 2 : 1 : 1. Their capitals as on 1 st April
2010 were Rs 50,000 , Rs. 30,000 and Rs. 20,000 respectively. At the end of the year on 31 st
March 2021 it was found that interest on capitals @12% p.a. and Salaries to P – Rs. 500 per
month and R – Rs. 1,000 per month were not adjusted from the profits.
Show adjusting entry to be made in the next year for above adjustments.
Q.23 On 1st April 2020 the capitals of A and B were Rs. 40,000 and Rs. 20,000respectivrly. They
divided profits in their capital ratio. Profits for the year ended 31 st March 2021 were
Rs.30,000 which have been duly distribute among the partners but the following transactions
were not passed through the books –
(a) Interest on Capitals @ 12 % p.a.
(b) Interest on Drawings A – Rs.1,200 , and B – Rs. 1.000.
(c) Commission due to B – Rs. 2,000 on a special transaction.
(d) A is to be paid a salary of Rs. 5,000.
You are required to pass a journal entry on 10th April 2022.

HOTS QUESTIONS
(HIGHER ORDER THINKING SKILLS)
Q.24 A, B and C were partners in a firm. Their capitals were A- Rs.1,00,000 , B- Rs. 2,00,000 and C-
Rs.3,00,000 respectively on 1 st April 2023. According to the partnership deed they were
entitled to an interest on capitals @5% p.a. In addition A was entitled to draw a salary of Rs.
5,000 per month. C was entitled to commission of 5% on the profits after charging the
interest on capitals but before charging the salary payable to A. The net profit for the year
ending 31st March 2024 were 3,60,000 distributed in the ratio of their capitals without
providing for any of the above adjustments. The profits were to be shared in the ratio of 2 :
3 : 5.
Pass necessary adjustment entry.
Q.25 A and B are partners in a firm sharing profits and losses in the ratio of 3 :2. Their capitals on
31st March 2021, after adjustment of net profit and drawings amounted to Rs.2,00,000 and
Rs.1,50,000 respectively. Later on it was discovered that interest on Capital @8% p.a. as
provided for in the partnership deed, had been credited to the partner’s capital account
before the distribution of profits. The year’s net profit amounted to Rs.75,000 and the
partners had withdrawn Rs.24,000 each. Instead of altering the signed balance sheet it was
decided to make an adjusting entry at the beginning of the New Year crediting or debiting
the partner’s capital account.
Q.26 On 31st March 2018, the balances in the Capital Account of Abhir, Bobby and Vineet, after
making adjustments for profits and drawings were Rs.8,00,000, Rs.6,00,000 and Rs.4,00,000
respectively.
Subsequently, it was discovered that interest on capital and interest on drawings had been
omitted. The partners were entitled to interest on capital @10% p.a. and were to be charged
interest on drawings @6%p.a. The drawings during the year were: Abhir- Rs. 20,000 drawn at
the end of each month, Bobby- Rs.50,000 drawn at the beginning of every half year and
Vineet – Rs.1,00,000 withdrawn on 31st October 2017. The net profit for the year ended 31 st
march 2018 was Rs.1,50,000. The profit sharing ratio was 2 : 2 : 1.
Pass necessary adjusting entry for the above adjustments in the books of the firm.Also
show your working clearly.

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 Guarantee of Profit to a Partner
Q.27 A , B and C are partners sharing profits in the ratio of 5 : 4 : 1. C is given a guarantee that his
share of profit in any given year would be 5,000. Deficiency if any would be borne by A and B
equally. The profit for the year ended 31st March 2021 amounted to Rs.40,000.
Prepare profit and Loss Appropriation Account and also give Journal entries in the books of
the firm.
Q.28 Mohit & Sobhit are partners Sharing profits in the ratio of 3:2. Rohit was admitted for 1/6 th
share of profit with a minimum guaranteed profit of Rs.10,000. At the close of the first
financial year on 31st March 2021, the firm earned profit of Rs. 54,000. Find the share of profit
which Mohit, Sobhit & Rohit will get.
Prepare Profit & Loss appropriation Account.
Q.29 X , Y & Z entered in the partnership on 1st October 2022 to share profits in the ratio of 4 : 3 : 3.
X personally guaranteed that Z’s share of profit after allowing interest on capitals @10% p.a.
would not less than Rs. 80,000 in a year. Capital contribution by X- Rs.3,00,000, Y-
Rs.2,00,000, Z- Rs.1,50,000.
Profit for the year ended 31st March 2023 was Rs.1,60,000.
Prepare Profit & Loss appropriation Account.
Q.30 The partners of the firm Alia Bhatt , Bhanu Pratap & Chetan Sharma distributed the profits
for the year ended 31st March 2017 Rs.80,000 in the ratio of 3 : 3 : 2 without providing for the
following adjustments:-
(a) Alia Bhatt and Chetan Sharma were entitled to a salary of Rs 1,500 p.m.
(b) Bhanu Pratap was entitled for a commission of Rs. 4,000
(c) Bhanu Pratap and Chetan Sharma had guaranteed a minimum profit of Rs.35,000 to Alia
Bhatt. Any deficiency to be borne by equally by Bhanu Pratap & Chetan Sharma.
Pass necessary journal entry for the above adjustments in the books of the firm. You’re
your working clearly.

MULTIPLE CHOICE QUESTIONS

1. Salary to a partner under fixed capital account is credited to.
(a) Partner‘s Capital A/c (b) Partners current A/C
(c) Profit & Loss A/c (d) Partner‘s Loan A/c

2. Rani and Shyam is partner in a firm. They are entitled to interest on their capital but the net profit
was not sufficient for paying his interest, then the net profit will be disturbed among partner in.
(a) 1 : 2 (b) Profit Sharing Ratio
(c) Capital Ratio (d) Equally

3. Which one of the following items is recorded in the Profit and Loss Appropriation account:-
(a) Interest on Loan (b) Partner salary
(c) Rent paid to Partner‘s (d) Managers Commission

4. A, B and C were partner in a firm sharing Profit in the ratio of 3:2:1, during the year the firm earned
profit of ₹ 84,000.Calculate the amount of Profit or Loss transferred to the Capital A/c of B.
(a) Loss ₹ 87,000 (b) Profit ₹ 87,000
(c) Profit ₹ 28,000 (d) Profit ₹14,000

12
5. Closing entry for interest on loan allowed to partners
(a) Interest on Partner‘s loan … Dr.
To Profit and Loss A/c
(b) Interest on loan … Dr.
To Profit and Loss Appropriation A/c
(c) Profit and Loss Appropriation A/c … Dr.
To Interest on Partners loan A/c
(d) Profit and Loss Appropriation A/c … Dr.
To Interest on loan A/c
6. In the absence of partnership deed partner share profit and loss in.
(a) Ratio of capital Employed (b) Equal Ratio
(c) 2 : 1 (d) 1 : 2
7. The relation of the partner with the firm is that of.
(a) An owner (b) An agent and a Principal
(c) An agent (d) Manager

8. As per section a minor may be admitted for the benefit of the partnership if:-
(a) One partner agree (b) More than one agree
(c) All Partners agree (d) Both (a) or (b)

9. If the partner carries on the business that is similar to firm competition with the firm & profit
earned from it, the profit.
(a) Shall be retained by the partner (b) Shall be paid to firm
(c) Can be retained or gained to the firm (d) Both (a) or (b)

10. A, B & C are partner‘s sharing profits in the ratio of 5:3:2 According to the partnership agreement C
is to get a minimum amount of ₹ 10,000 as his share of profits every year. The net profit for the year
ended 31st March, 2021 amounted to ₹ 40,000. How much amount contributed by A?
(a)₹ 1,350 (b) ₹ 1,250
(c) ₹ 750 (d) ₹ 1,225
TRUE / FALSE:
1. The nature of Profit and Loss Account is real.
2. Registration of partnership is optional.
3. A body corporate can be a partner in partnership firm.
4. Sleeping partner are those who do not take part in conduct of the business.
5. When the Partnership agreement is silent about the treatment of interest on capital then it will be
treated as charge on profit.
6. Fixed capital always shows Debit balance.
7. When a partnership firm gives loan to its partner then interest on loan will be debited in P& L A/c.
8. In case of fixed capital account method drawing out of capital is shown in partner current A/c.
9. Manager‘s commission is shown in Profit and Loss Appropriation A/c.
10. Interest as a charge means interest on capital is to be allowed whether the firm has earned profit
or incurred loss.
Case Study Based Questions
Read the following information carefully and answer the questions that follow:
X and Y are partners in 3:2. Their capital balances as on 1st April 2020 amounting to ₹2,00,000 each.

13
On 1st February, 2021, X contributed an additional capital of ₹1,00,000. Following are the terms of
deed: a) Interest on capital @ 6% per annum b) Interest on drawings @ 8% per annum c) Salary to X
₹1500 per monthd) Commission to Y @10% on net profit after charging interest on capital, salary and
his commission. Drawings of the partners were ₹20,000 and ₹30,000 respectively during the year. Net
profit earned by the firm was ₹2,08,000. Choose the correct option based on the above information:
Q1. What is the amount of Interest on capitals of X and Y:
a) ₹12,000 each b) ₹12,000 to X and ₹ ₹13,000 to Y
c) ₹13,000 to X and ₹12,000 to Y d) None of the above.
Q2. What is the amount of interest on drawings of X and Y:
a) ₹ 1200 and ₹ 1800 respectively b) ₹ 800 and ₹ 1200 respectively
c) ₹ 1200 and ₹ 800 respectively d) ₹ 1600 ₹ 2400 respectively

Q3. What is the amount of commission payable to Y?

a) ₹ 15000 b) ₹ 16500
c) ₹ 20800 d) None of these

Q4. What is X's share in the net divisible profit?

a) ₹ 124400 b) ₹ 83600
c) ₹ 91200 d) ₹ 60800

Q5. What will be the closing capital of X after all adjustments?

a) ₹ 422200 b) ₹ 401400
c) ₹ 300000 d) ₹ 423000
Assertion-Reasoning Based questions
Q1. Assertion (A): In the absence of Partnership deed profits and losses are divided equally among the
partners.
Reason(R): This rule is applicable according to Indian partnership Act, 1932.
a) Both (A) and (R) are true and (R) is the correct explanation of (A)
b) Both (A) and (R) are true and (R) is not the correct explanation of (A)
c) (A) is true, bur (R) is false
d) (A) is false, but (R) is true.
Q2. Assertion (A): Personal properties of a partner may also be used to pay off the firm’s debts.
Reason(R): All partners have limited liability in the firm.
a) Both (A) and (R) are true and (R) is the correct explanation of (A)
b) Both (A) and (R) are true and (R) is not the correct explanation of (A)
c) (A) is true, but (R) is fals
d) (A) is false, but (R) is true.
Q3. Assertion (A): Partnership firm is a form of organisation where two or more persons carry on
business activity on the basis of agreement among them.
Reason(R): The profit or loss arising from the partnership business is shared by the partners in the
agreed ratio.
a) Both (A) and (R) are true and (R) is the correct explanation of (A)
b) Both (A) and (R) are true and (R) is not the correct explanation of (A)
c) (A) is true, but (R) is false
d) (A) is false, but (R) is true.
Q4.Assertion (A): Maximum number of partners in a partnership firm is
Reason(R): Maximum number of partners in a partnership firm is prescribed in Companies Act, 2013.

14
a) Both (A) and (R) are true and (R) is the correct explanation of (A)
b) Both (A) and (R) are true and (R) is not the correct explanation of (A)
c) (A) is true, but (R) is false
d) (A) is false, but (R) is true.
Q5. Assertion (A): A partnership deed covers all matters relating to mutual relationship among the
partners.
Reason(R): But in the absence of partnership deed, provisions of the Indian partnership Act, 1932 shall
apply for accounting purposes.
a) Both (A) and (R) are true and (R) is the correct explanation of (A)
b) Both (A) and (R) are true and (R) is not the correct explanation of (A)
c) (A) is true, but (R) is false
d) (A) is false, but (R) is true.
Q6. Assertion (A): Rent to partner is not shown in Profit and Loss Appropriation Account. Reason(R):
Rent to a partner is a charge against profit..
a) Both (A) and (R) are true and (R) is the correct explanation of (A)
b) Both (A) and (R) are true and (R) is not the correct explanation of (A)
c) (A) is true, but (R) is false
d) (A) is false, but (R) is true.
Q7. Assertion (A): Interest on Partner’s capital may be shown in Profit and Loss Account. Reason(R): If
Partners treat interest on capital as a charge.
a) Both (A) and (R) are true and (R) is the correct explanation of (A)
b) Both (A) and (R) are true and (R) is not the correct explanation of (A)
c) (A) is true, but (R) is false
d) (A) is false, but (R) is true.
Q8. Assertion (A): Rent payable to partner is credited to Partner’s Capital account.
Reason(R): Rent is payable to partner for letting the firm use his personal property for business.
a) Both (A) and (R) are true and (R) is the correct explanation of (A)
b) Both (A) and (R) are true and (R) is not the correct explanation of (A)
c) (A) is true, but (R) is false
d) (A) is false, but (R) is true.
Q9. Assertion (A): For calculating Interest on Drawings, product method is used.
Reason(R): Partners withdraw different amounts of money at different intervals of time.
a) Both (A) and (R) are true and (R) is the correct explanation of (A)
b) Both (A) and (R) are true and (R) is not the correct explanation of (A)
c) (A) is true, but (R) is false
d) (A) is false, but (R) is true.
Q10. Assertion (A): Guarantee of minimum profit may be given to a partner.
Reason(R): It is compulsory as per Indian Partnership Act, 1932.
a) Both (A) and (R) are true and (R) is the correct explanation of (A)
b) Both (A) and (R) are true and (R) is not the correct explanation of (A)
c) (A) is true, but (R) is false
d) (A) is false, but (R) is true.

ANSWER KEY
Ans.1 (a) Profit will be shared by A and B equally.
(b) B will not get the Salary because no partnership deed is given.
(c) B will be given interest on his loan @ 6% p.a.

15
 (d) In the absence of the partnership deed profits will be shared equally so, ‘B’ is correct.
(e) No, interest on capital will be allowed because partnership deed is not given.
(f) ‘A’ is not entitled to any salary because partnership deed is not given.
(g) A’s son Rajesh cannot be admitted as a partner because ‘B’ objects it. In the absence
of the partnership deed all the partner are not agree to admit Rajesh as a partner so,
he cannot be admitted in the firm.
(h) ‘A’ must return Rs.1,75,000 because he used firms money for business.
(i) ‘A’ must return Rs.50,000 and bear loss himself.
(j) Ans.2 Mohan cannot be admitted because all the partners are not agree to admit him
as a partner.
Ans. 5 Calculation of Interest on Capitals
Particulars X (Rs.) Y (Rs.) Z (Rs.)
Interest on Capital from 5,00,000 x 8/100 x 4,00,000 x 3,00,000 x 8/100 x
1st April to 1st July 2023 3/12 = 10,000 8/100 x 3/12 = 3/12 = 6,000
8,000
Interest on Capitals for “X (5,00,000 + 1,00,000) (4,00,000 + (3,00,000 + 50,000)
st
& Z” From 1 July 2023 to 6,00,000 x 8/100 x 80,000 ) 3,50,000 x 8/100 x
31st March 2024 9/12 = 36,000 4,80,000 x 9/12 = 21,000
st st
“Y” 1 July 2023 to to 1 8/100 x 7/12 =
February 2024 22,400
(7 Months)
Interest on Capitals for Y” (4,80,000 –
st st
1 February 2024 to 31 15,000 ) =
March 2024 4,65,000 x
(2 Months) 8/100 x 2/12 =
6,200
Total Interest on Capitals 46,000 36,600 27,000
Ans.2 Mohan cannot be admitted because all the partners are not agree to admit him as a partner.
Ans.3 Goods may be purchased because majority allowed to purchased.
Ans.4 Calculation of Interest on Capitals
Particulars Girish (Rs.) Satish (Rs.)
Interest on Capital from 1st 5,60,000 x 6/100 x 4/12 = 4,75,000 x 6/100 x 4/12 =
April to 1st August 2023 11,200 9,500

Interest on Capitals From 1st 5,00,000 x 6/100 x 8/12 = 5,00,000 x 6/100 x 8/12 =
August 2023 to 31st March 20,000 20,000
2024
Total Interest on Capitals 31,200 29,500

Ans.4 Interest on Capitals Girish Rs.31,200 and Satish Rs.29,500.

Ans.5 Interest on Capitals X-Rs.46,000 ,Y-Rs.36,600 ,Z-Rs.27,000.
Ans.6 Calculation of Interest on Capitals
Interest on Capital will be calculated on Opening Capital In this question Closing Capital Is
given therefore we to find out Opening Capital
OPENING CAPITAL = CLOSING CAPITAL (+) DRAWINGS (-) ADDITIONAL CAPITAL (-) PROFIT (+)
LOSS

16
 Calculation Of Opening Capitals
Particulars Mountain Hill (Rs.) Rock (Rs.)
(Rs.)
Closing Capital (As on 31st 4,00,000 3,00,000 2,00,000
March 2024)
(+) Drawings 20,000 15,000 10,000
(-) Profit (1:1:1) (50,000) (50,000) (50,000)
Opening Capital (As on 1st April 3,70,000 2,65,000 1,60,000
2023)

Calculation of Interest on Capitals

Particulars X (Rs.) Y (Rs.) Z (Rs.)
Interest on Capital from 3,70,000 x 10/100 = 2,65,000 x 10/100 1,60,000 x 10/100
st st
1 April 2023 to 31 37,000 = 26,500 = 16,000
March 2024

Ans.6 Interest on Capitals Mountain Rs.37,000 , Hill Rs.26,500 , and Rock Rs.16,000.

Ans.7 Interest on capitals Long- Rs.10,800 and Short – Rs.13,200

CALCULATION OF INTEREST ON DRAWINGS
Ans.8 (a). ‘X’ draws Rs.4, 000 from the firm at the first day of every month.
Interest on Drawings = Total Drawings x Rate of Interest /100 x 6.5/12
Total Drawings of “X” = 4,000 x 12 = 48,000
Interest on Drawings of “X” = 48,000 x 9/12 x 6.5/12 = Rs.2,340
(b) ‘Y’ draws Rs.4, 000 from the firm at the end of the month.
Interest on Drawings = Total Drawings x Rate of Interest /100 x 5.5/12
Total Drawings of “Y” = 4,000 x 12 = 48,000
Interest on Drawings of “Y” = 48,000 x 9/12 x 5.5/12 = Rs.1,980
(c) ‘Z’ draws Rs. 4,000 from the firm in the middle of the month
Interest on Drawings = Total Drawings x Rate of Interest /100 x 6/12
Total Drawings of “Z” = 4,000 x 12 = 48,000
Interest on Drawings of “Z” = 48,000 x 9/12 x 6/12 = Rs.2,160.
Ans.8 Interest on Drawings ‘X’- Rs.2,340 , ‘Y’- Rs. 1,980 , ‘Z’- Rs. 2,160.
Ans.9 Calculation of Interest on Drawings
(a) If he withdrew Rs.5,000 in the beginning of each quarter.
Interest on Drawings = Total Drawings x Rate of Interest /100 x 7.5/12
Total Drawings of Mr Aditya = 5,000 x 4 = Rs.20,000
Interest on Drawings = 20,000 x 8 /100 x 7.5/12 = Rs.1,000
(b) ) If he withdrew Rs.6,000 at the end of each quarter.
Interest on Drawings = Total Drawings x Rate of Interest /100 x 4.5/12
Total Drawings of Mr Aditya = 6,000 x 4 = Rs.24,000
Interest on Drawings = 24,000 x 8 /100 x 4.5/12 = Rs.720
(c) ) If he withdrew Rs.10,000 during the middle of each quarter.
Interest on Drawings = Total Drawings x Rate of Interest /100 x 6/12
Total Drawings of Mr Aditya = 10,000 x 4 = Rs.40,000
Interest on Drawings = 40,000 x 8 /100 x 6/12 = Rs.1,600

17
 Ans.9 Case (a) Rs.1,000 (b) Rs.720 (c) Rs.1,600.
Ans.1 Calculation of Interest on Drawings
0 Interest on Drawings = Total Drawings x Rate of Interest /100 x 3.5/12
Total Drawings of Mr Gupta = 800 x 6 = 4,800
Interest on Drawings = 4800 x 15 /100 x 3.5/12= Rs.210
Ans.10 Interest on drawings Rs.210.
Ans.1 Calculation of Interest on Drawings
1 Interest on Drawings = Total Drawings x Rate of Interest /100 x 3.5/12
Total Drawings of Mr Gupta = 800 x 6 = 4,800
Interest on Drawings = 4800 x 15 /100 x 2.5/12= Rs.150
Ans.11 Interest on drawings Rs.150.
Ans.1 Calculation of Interest on Drawings of Product Method
2 If dates of Drawings & Amount of Drawings are irregular therefore this
method is applied for the calculation of interest on Drawings
Date Amount of No of Months Product
Drawings up to 31st March
2024
Column (1) Column (2) Column (3) Column (4) = Column
(2) x Column (3)
st
1 June 1,000 10 1,000 x 10 = 10,000
st
1 August 750 8 750 x 8 = 6,000
st
1 October 1,250 6 1,250 x 6 = 7,500
1st 500 4 500 x 4 = 2,000
December
1st February 500 2 500 x 2 = 1,000
Total = 26,500

Interest on Drawings = Total of Product x Rate of Interest/100 X 1/12

Interest on Drawings = 26,500 x 10/100 X 1/12 = 220.833 or Approx. Rs.221

Ans.12 interest on Drawings Rs.221.

Maintenance of Profit/Loss Appropriation Account & Partners Capital Account

Ans.1 Profit and Loss Appropriation Account
3 Dr for the year ended 31st March 2022 Cr.
Particulars Amount Particulars Amount
(Rs.) (Rs.)
To Puneet’s Capital A/c 44,000 By Profit and Loss A/c 4,40,000
(Commission)
To Raju’s Capital A/c (Commission) 36,000 44,000 x 100 /10
To Profit share transferred to :- 1,80,000
Puneet’s Capital A/c
Raju’s Capital A/c 1,80,000
4,40,000 4,40,000

18
 Working Notes
1.Calculation of Net Profit on the Basis of Puneet’s Commission
Net Profit = 44000 x 100/10 = Rs. 4,40,000
2.Calculation of Raj’s Commission After Charging word is given
Net Profit x Rate of Commission / 100 + Rate of Commission
Raju’s Commission = 4,40,000 x 10 /100+10 = 4,40,000 x 10 /110
Raju’s Commission = Rs.36,000
3.Division of Profit Equally between Puneet & Raju because no information is given about
the ratio of distribution of profit so, profit will distributed between Puneet & Raju in the
Ratio of 1:1 Balance of profit = Total of Credit Side of P/L Appropriation A/c = 4,40,000 (-)
Total of Debit Side of P/L Appropriation A/c (44,000 + 36,000 ) = 3,60,000
Puneet’s Share of Profit =3,60,000 x ½ = Rs.1,80,000
Raju’s Share of Profit =3,60,000 x ½ = Rs.1,80,000
Ans.1 Profit and Loss Appropriation Account
4 Dr for the year ended 31st March 2022 Cr.
Particulars Amount Particulars Amount
(Rs.) (Rs.)
To Interest on Capitals- 35,000 By Profit and Loss A/c 2,21,640
Lata- 3,00,000 x 7/100 = 21,000 By Interest on Drawings 3,360
Mamta- 2,00,000 x 7/100 = 14,000 Lata-1,440

To Salary To Lata (2,500 x 12) 30,000 Mamta-1,920

To Partner’s Capital A/c 1,60,000
Lata – 1,60,000 x 70/100 =
1,12,000
Mamta-1,60,000 x 30/100 = 48,000
2,25,000 2,25,000
Working Notes:-
!. Calculation of Interest on Mamta’s Loan rate is not given so it will be assumed 6% p.a. in the
absence of Partnership Deed. Interest on Mamta’s Loan = 80,000 x 6/100 = Rs.4,800 & it is
charge against profit so, remaining Net Profit = 2,26,440 (-) 4,800 = 2,21,640.
1.Calculation of Interest on Drawings no date of drawings is given so interest will be
calculated for six month
Lata= 36,000 x 8/100 x 6/12 = Rs.1,440, Mamta = 48,000 x 8/100 x 6/12 = Rs.1,920

Partners’ Capital Account

Dr Cr.
Particulars Mamta Lata Particulars Mamta Lata (Rs.)
(Rs.) (Rs.) (Rs.)
To Drawings 36,000 48,000 By Balance b/d 3,00,000 2,00,000
To Interest on 1,440 1,920 By Interest on 21,000 14,000
Drawings Capitals
To Balance c/d 4,25,560 2,12,080 By Salary 30,000

By P/L 1,12,000 48,000

Appropriation A/c

19
 4,63,000 2,62,000 4,63,000 2,62,000
Ans.1 15 Profit and Loss Appropriation Account
5 Dr for the year ended 31st March 2023 Cr.
Particulars Amount Particulars Amount
(Rs.) (Rs.)
To Interest on Capitals- 3,600 By Profit and Loss A/c 30,800
Y- 25,000 x 9/100 = 2,250
Z- 15,000 x 9/100 = 1,350

To Salary to ‘Z’ 6,000

To Z’s Commission 1,200
To Partner’s Capital A/c 20,000
Y= 20,000 x ½ = 10,000
Z= 20,000 x ½ = 10,000
30,800 30,800

Working Note :- Calculation of Z’s Commission

Total of Credit side of P/L Appropriation Account = 30,800
(-) Salary (6,000)(+) Interest on Capitals (3,600) = (9,600)
Balance = 29,400 Z’s Commission = 21,200 x 6/106 =1,200
Partners’ Capital Account
Dr Cr.
Particulars Y (Rs.) Z (Rs.) Particulars Y (Rs.) Z (Rs.)
To Balance c/d 25,000 15,000 By Balance b/d 25,000 15,000
25,000 15,000 25,000 15,000

Partners’ Current Account

Dr Cr.
Particulars Y (Rs.) Z (Rs.) Particulars Y (Rs.) Z (Rs.)
To Balance 12,250 18,550 By Interest on Capitals 2,250 1,350
c/d
By salary - 6,000
By Commission - 1,200
By P/L appropriation 10,000 10,000
A/c
12,250 18,550 12,250 18,550
Ans.1 Profit and Loss Appropriation Account
6 Dr. For the year ended 31st March 2015 Cr.
Particulars (Dr) Amount(Rs. Particulars (Cr.) Amount(Rs.)
)
To Salary to B 24,000 By Profit and Loss 2,80,000
A/c
To Interest on Capitals 1,40,000 By Interest on
A- 80,000 Drawings
B- 60,000 C- 2,500 4,000
D- 1,500

20
 To Partners’ Current
Account :
A = 1,20,000 x 3/5 = 1,20,000
72,000
B= 1,20,000 x 2/5 =
48,000
2,84,000 2,84,000

Dr Partners’ Capital Accounts Cr.

Particulars A (Rs.) B (Rs.) Particulars A (Rs.) B (Rs.)
To Balance 8,00,00 6,00,00 By Balance b/d 8,00,00 6,00,000
c/d 0 0 0
8,00,00 6,00,00 8,00,00 6,00,000
0 0 0

. Dr. Partners’ Current Accounts Cr.

Particulars A (Rs.) B (Rs.) Particulars A (Rs.) B (Rs.)
To Drawings 50,000 30,000 By Balance b/d 16,000 22,000
To Interest on 2,500 1,500 By Salary to B 24,000
Drawings
To Balance 1,15,50 1,22,50 By Int. on Capitals 80,000 60,000
c/d 0 0
ByP/Lappropriation 72,000 48,000
A/c
1,68,00 1,54,00 1,68,00 1,54,000
0 0 0

Working Notes :-
1) Calculation of Capitals
A = 80,000 x 100 /10 = Rs.8,00,000
B = 60,000 X 100 /10 = Rs.6,00,000
2) Calculation of Drawings
A- = 2,500 x 100 /10 x 12/6 = Rs.50,000
B = 1,500 x 100/10 x 12/6 = Rs.30,000
PAST ADJUSTMENTS
Ans.1 Adjustment Table
7 Particulars A(Rs.) B (Rs.) C (Rs.) Firm (Rs.)
Interest on Capitals (+) 6,400 (+) 3,200 (+) 2,400 (-) 12,000
Loss Distributed (2:1:1) (-) 6,000 (-) 3,000 (-) 3,000 (+) 12,000
(+) 400 (+) 200 (-) 600 Nil

Adjustment Entry
Date Particulars L.F. Dr. Cr.
(Rs.) (Rs.)
C’s Capital A/c Dr. 600

21
 To A’s Capital A/c 400
To B’s Capital A/c 200
(Adjustment entry of interest on Capital
made)

Ans.1 B’s Capital A/c Dr. 50

8 C’s Capital A/c Dr. 50
To A’s Capital A/c Rs. 100 .
Ans.1 C’s Current A/c Dr. 8,000
9 To A’s Current A/c 8,000.
Ans.2 Adjustment Table
0 Particulars A(Rs.) B (Rs.) C (Rs.) D (Rs.) Firm (Rs.)
Interest on Drawings (-) 600 (-) 720 (-) 960 (-) 1,320 (+)3,600
Profit Distributed (+) 720 (+) 720 (+) 1,080 (+) 1,080 (-) 3,600
(2:2:3:3)
(+) 120 Nil (+) 120 (-) 2400 Nil
Note:- Dates of Drawings is not given so, Interest on Drawings will be calculated for six
months because after rate of drawings p.a. word is given.
Adjustment Entry
Date Particulars L.F. Dr. Cr.
(Rs.) (Rs.)
D’s Capital A/c Dr. 240
To A’s Capital A/c 120
To C’s Capital A/c 120
(Interest on Drawing’s Adjustment entry
Made)

Ans. Adjustment Table

21 Particulars Anil Sunil Sanja Firm (Rs.)
(Rs.) (Rs.) y (Rs.)
Interest on Capitals (Two Years) (+) (+) 14,000 (+) (-) 36,000
16,000 6,000
Loss Distributed (-) (-) 6,000 (-) (+) 18,000
First Year Second Year 8,000 (-) 6,000 4,000 (+) 18,000
Anil -18000 x 4/9 , 18,000 x (-) (-)
3/6 9,000 3,000
Sunil – 18000 x 3/9 , 18000 x
2/6
Sanjay- 18,000 x 2/9 , 18000 1/6
(-) (+) 2,000 (-) Nil
1,000 1,000

Adjustment Entry
Date Particulars L.F. Dr. Cr. (Rs.)
(Rs.)

22
 Anil’s Current A/c Dr. 1000
Sanjay’s Current A/c Dr. 1000
To Sunil’s Current A/c 2000 .

(Adjustment entry of interest on Capital

made)
Note ;- Capitals are given fixed so Current Account will be open.
Ans.2 Adjustment Table
2 Particulars ‘P’ (Rs.) ‘Q’ (Rs.) ‘R’ (Rs.) Firm
(Rs.)
Interest on Capitals (+) 6,000 (+) 3,600 (+) 2,400 (-)
12,000
Salary to P- 500 x 12 R- (+) 6,000 (+) 12,000 (-)
1000 x 12 18,000
Profit Distributed (-) 15,000 (-) 7,500 (-) 7,500 (+)
(2:1:1) 30,000
(-) 3,000 (-) 3,900 (+) 6,900 Nil
Adjustment Entry
Date Particulars L.F. Dr. Cr. (Rs.)
(Rs.)
P’s Capital A/c Dr. 3,000
Q’s Capital A/c Dr. 3,900
To R’s Capital A/c 6,900
(Adjustment Entry for Interest on
Capitals & Salary Made)
Ans.2 Adjustment Table
3 Particulars ‘A’ (Rs.) ‘B’ (Rs.) Firm (Rs.)
Interest on Capitals (+) 4,800 (+) 2,400 (-) 7,200
Commission (+) 2,000 (-) 2,000
Salary to A (+) 5,000 (-) 5,000
Interest On Drawings (-) 1,200 (-) 1,000 (+) 2,200
Loss Distributed (-) 8,000 (-) 4,000 (+) 12,000
(Capital Ratio i.e. 40,000 : 20,000 OR 2:1)
(+) 600 (-) 600 Nil
Adjustment Entry
Date Particulars L.F. Dr. Cr.
(Rs.) (Rs.)
2022 B’s Capital A/c Dr. 600
April To A’s Capital A/c 600
10 (Adjustment Entry for Interest on Capitals,
Salary, Commission & Interest on Drawings
made)
Ans.2 Adjustment Table
4 Particulars ‘A’ (Rs.) ‘B’ (Rs.) ‘C’ (Rs.) Firm (Rs.)
Profit Already (-) 60,000 (-) 1,20,000 (-) 1,80,000 (+)
Distributed (1:2:3) 3,60,000

23
 Interest on Capitals (+) 5,000 (+) 10,000 (+) 15,000 (-) 30,000
Salary To ‘A’ 5,000 x (+) 60,000 (-) 60,000
12
Commission (+) 16,500 (-) 16,500
Profit to be (+) 50,700 (+) 76,050 (+) (-) 2,53,500
Distributed (2:3:5) 1,26,750
(+) 55,700 (-) 33,950 (-) 21,750 Nil
Capital Ratio of Profit = 1,00,000 : 2,00,000 : 3,00,000 (OR) 1 : 2 : 3
Calculation Of Commission to “C”
Total of Profit of the firm Rs. 3,60,000
(-) Interest on Capital To A,B,& C (Rs.30,000)
Balance Amount = 3,30,000
Commission to “C” = 3,30,000 x 5/100 = 16,500
Adjustment Entry
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
2024 B’s Capital A/c Dr. 33,950
March C’s Capital A/c Dr. 21,750
31 To A’s Capital A/c 55,700
(Adjustment Entry for Interest on
Capitals, Salary, Commission made)
Ans.2 In this question Opening Capital is not given so it will be find out
5 Calculation of Opening Capitals
Particulars “A” (Rs.) “B” (Rs.)
Closing Capital (As on 31st March 2021) 2,00,000 1,50,000
(+) Drawings 24,000 24,000
(-) Profit (3:2) (45,000) (30,000)
st
Opening Capital (As on 1 April 2020) 1,79,000 1,44,000

Adjustment Table
Particulars ‘A’ (Rs.) ‘B’ (Rs.) Firm (Rs.)
Profit Already Distributed (3:2) (-) 45,000 (-) 30,000 (+)75,000
Interest on Capitals (+) 14,320 (+) 11,520 (-) 25,840
Profit to be Distributed (3:2) (+) 29,496 (+) 19,664 (-) 49160
(-) 1,184 (+) 1,184 Nil

Adjustment Entry
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
2021 A’s Capital A/c Dr. 1,184
April To B’s Capital A/c 1,184
1 (Adjustment Entry for Interest on Capitals
made)
Ans.2 In this question Opening Capital is not given so it will be find out
6 Calculation of Opening Capitals
Particulars “Abhir” “Bobby” Vineet
(Rs.) (Rs.) (Rs.)
st
Closing Capital (As on 31 March 8,00,000 6,00,000 4,00,000

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 2018)
(+) Drawings 2,40,000 1,00,000 1,00,000
(-) Profit (2 : 2 : 1) (60,000) (60,000) (30,000)
Opening Capital (As on 1st April 2020) 9,80,000 6,40,000 4,70,000

(i) Interest On Capital

Abhir = 9,80,000 x 10/100 = Rs.98,000
Bobby = 6,40,000 x 10/100 = Rs.64,000,
Vineet = 4,70,000 x 10/100 = Rs.47,000

(ii)Interest on Drawings
Abhir = 20,000 x 12 = 2,40,000 x 6/100 x 5.5/12 = Rs.6,600
Bobby beginning of half yearly 50,000 x 6/100 = Rs.3,000 & 50,000 x 6/100 x 6/12 = Rs.1,500
Total = 3,000 + 1,500 = Rs.4,500
Vineet 31st October 2017 to 31st March 2018 = 1,00,000 x 6/100 x 5/12 = Rs.2,500

(iii)Total amount of Appropriation (Profit Available) = 1,50,000 + 6,600 + 4,500 + 2,500 =

Rs.1,63,600.

(iv)Total Interest on Capital = 98,000+ 64,000 + 47,000 = Rs. 2,05,000

Totals of Interest on Capital (Rs.2,05,000) is more than the total profit available for
Distribution (Rs.1,63,600)
So Profit available will be distributed in the Ratio of Interest on Capitals i.e. 98,000 : 64000 :
47000 = 98 : 64 : 47
Adjustment Table
Particulars Abhir Bobby Vineet Firm (Rs.)
(Rs.) (Rs.) (Rs.)
Profit Already Distributed (-) (-) (-) 30,000 (+) 1,50,000
(2:2:1) 60,000 60,000
Interest on Drawings (-) 6,600 (-) 4,500 (-) 2,500 (+) 13,600
Interest on Capital (+) (+) (-) 36,790 (-) 1,63,600
(98:64:47) 76,712 50,098
(+) (-) (+) 4,290
10,112 14,402

Adjustment Entry
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
2018 Bobby’s Capital A/c Dr. 14,402
April To Abhir’s Capital A/c 10,112
1 To Vineet’s Capital A/c 4,290
(Adjustment Entry for Interest on Capitals
made)
Ans.2 Profit and Loss Appropriation Account
7 Dr. For the Year ended 31st March 2021 Cr.
Particulars (Dr) Amount(Rs.) Particulars (Cr.) Amount(Rs.)
To Partner’s Capital A/c 40,000 By Profit and Loss 40,000

25
 A/c
A- 19,500
B- 15,500
C- 5,000
40,000 40,000
Working Note:-
Distribution of Profit
A’s Share of Profit = 40,000 x 5/10 = 20,000
(-) C’s Deficiency 1000 x ½ (500) 19,500

B’s Share of Profit = 40,000 x 4/10 = 16,000

(-) C’s Deficiency 1000 x ½ (500) 15,500

C’s Share of Profit = 40,000 x 1/10 = 4,000

(+) C’s Deficiency 1,000 5,000
Ans.2 Profit and Loss Appropriation Account
8 Dr. For the Year ended 31st March 2021 Cr.
Particulars (Dr) Amount(Rs.) Particulars (Cr.) Amount(Rs.)
To Partner’s Capital A/c 54,000 By Profit and Loss 54,000
A/c
Mohit- 19,500
Sobhit- 15,500
Rohit- 10,000
54,000 54,000

Working Note:-
Distribution of Profit
First we have to find out the Rohit’s Share of Profit (New Partner)
Rohit’s Share of Profit = 54,000 x 1/6 = Rs.9,000
(+) Rohit’s Deficiency Rs.1,000 Rs.10,000
Remaining Profit = 54,000 (-) 10,000 = Rs.44,000 distributed between Mohit & Sobhit in the
ratio of 3:2
Mohit’s Share of Profit = 44,000 x 3/5 = Rs.26,400
Sobhit’s Share of Profit = 44,000 x 2/5 = Rs.17,600
It means Rohit’s Deficiency distributed by Mohit & Sobhit in the ratio of 3 : 2
Mohit bear the deficiency of Rohit 1000 x 3/5 = 600
Sobhit bear the deficiency of Rohit 1000 x 2/5 = 400
Ans.2 Profit and Loss Appropriation Account
9 Dr. For the Year ended 31st March 2023 (for Six Month) Cr.
Particulars (Dr) Amount(Rs.) Particulars (Cr.) Amount(Rs.)
To Interest on Capitals 32,500 By Profit and Loss 1,60,000
A/c
X – 15,000
Y-10,000
Z- 7,500
To Partner’s Capital A/c 1,27,500

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 X-49,250
Y-38,250
Z-40,000
1,60,000 1,60,000

Working Note:-
(1) Calculation of Interest on Capitals from 1st October 2022 to 31st March 2023
X = 3,00,000 x 10/100 x 6/12 = Rs.15,000
Y = 2,00,000 x 10/100 x 6/12 = Rs.10,000
Z = 1,50,000 x 10/100 x 6/12 = Rs.7,500
(2) Distribution of profit six moths so guarantee of profit is also for six months i.e.
Rs.40,000
X’s Share of Profit = 1,27,500 x 4/10 = Rs. 51,000
(-) Z’s Deficiency (1,750) Rs.49,250
Y’s Share of profit = 1,27,500 x 3/10 = Rs.38,250
Z’s Share of profit = 1,27,500 x 3/10 = Rs.38,250
(+) Z’s Deficiency borne by X Rs. 1,750
i.e. (40000 – 38250) = Rs. 1,750 Rs.40,000
Ans.3 Adjustment Table
0 Particulars Alia Bhatt Bhanu Chetan Firm (Rs.)
(Rs.) Pratap Sharma
(Rs.) (Rs.)
Profit Already Distributed (-) 30,000 (-) 30,000 (-) 20,000 (+) 80,000
(3:3:2)
Salary (1,500 x 12) (+) 18,000 (+) 18,000 (-) 36,000
Commission (+) 4,000 (-) 4,000
Profit to be distributed (+) 35,000 (+) 5,000 (-) 40,000
(3:3:2)
(+) 23000 (-) 21,000 (-) 2,000 Nil

Working Note – Distribution of Profit

Alia Bhatt’s Share = 40,000 x 3/8 = Rs.15,000
(+) Alia Bhatt’s Deficiency = Rs.20,000 Rs.35,000
Bhanu Pratap’s Share = 40,000 x 3/8 = 15,000
(-) Alia Bhatt’s Deficiency 20,000 x ½ = (10,000) Rs.5000
Chetan Sharma’s Share = 40,000 x 2/8 = 10,000
(-) Alia Bhatt’s Deficiency 20,000 x ½ = (10,000) Nil
Adjustment Entry
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.)
2017 Bhanu Pratap’s ’s Capital A/c Dr. 21,000
April Chetan Sharma’s Capital A/c 2,000
1 To Alia Bhatt’s Capital A/c 23,000
(Adjustment Entry for made)

MULTIPLE CHOICE QUESTIONS:-

Ans.1. [b]

27
Ans.2. [c]
Ans.3 [b]
Ans.4 [c]
Ans.5 [c]
Ans.6 [b]
Ans.7 [b]
Ans.8 [c]
Ans.9 [b]
Ans.10 [b]
TRUE / FALSE:
Ans.1. [F]
Ans.2. [T]
Ans.3. [F]
Ans.4. [F]
Ans.5. [F]
Ans.6. [F]
Ans.7. [T]
Ans.8. [F]
Ans.9. [F]
Ans.10. [T]
Case Study Based Questions
Ans.1 (C) IOC to X= (2,00,000*6/100)+(1,00,000*6/100*2/12)= 13,000 IOC to Y= 2,00,000*6/100= 12,000
Ans 2 (b) IOD will be calculated for an average period of six months since time of drawings is not given. Ans.3
(a) 2,08,000-13,000-12,000(IOC)-18,000(salary)= 1,65,000*10/110= 15,000.
Ans.4(c) Divisible profit= 2,08,000(N.P.)+800+1,200(IOD)-13,000-12,000(IOC)- 18,000(salary)-
15,000(commission)= 1,52,000. Share of X in divisible profit= 1,52,000* 3/5= 91,200
Ans.5(b) Closing capital of X= 2,00,000(opening capital)+1,00,000(addl. capital)+13,000(IOC)+18,000(salary)
+91,200(profit share)-20,000(drawings)- 800(IOD)= 4,01,400.
Assertion-Reasoning Based questions
Ans.1 (a) In the absence of partnership Deed, profits are shared equally among the partners, as per the
provisions of Indian partnership act, 1932.
Ans.2 (c) All partners have unlimited liability.
Ans.3 (b) Both the statements are two different facts.
Ans.4 (c) Maximum number of partners is 50 according to Indian partnership Act, 1932 and 100 as per Indian
Companies Act, 2013.
Ans.5 (b) Both the statements are two different facts.
Ans.6 (a) Charge against profit is shown in P & L account.
Ans. 7 (a) Charge against profit is shown in P & L account.
Ans.8 (d) Rent payable to partner is not shown in Capital account; it is shown in Rent payable account.
Ans.9 (a) Both the statements are true and R is the correct explanation of A.
Ans.10 (c) Guarantee of minimum profit to a partner depends on mutual consent of partners, it is not
compulsory.

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