Partnership Fundamentals Worksheet

1. A firm follows the fluctuating capital method. One of its partners takes a loan from the firm on
which, as per the partnership deed, the firm is entitled to receive interest. What will be the
adjusting entry for this interest on loan?

(a) Debit Interest on Loan A/c; Credit Profit and Loss Appropriation A/c
(b) Debit Interest on Loan A/c; Credit Profit and Loss A/c
(c) Debit Partner's Capital A/c; Credit Interest on Loan A/c
(d) Debit Partner's Loan A/c; Credit Interest on Loan A/c

2. Arav, Rahil and Himmat are partners in a firm sharing profits and losses in the ratio of 5:3:2.
Arav guaranteed a minimum profit of ₹ 30,000 to Himmat.

The trading loss of the firm for the year ending 31st March, 2021, was ₹ 1,20,000. In order to
meet the deficiency in Himmat's profits, Arav's capital will be

(a) debited by 30,000

(b) credited by ₹ 54,000
(c) debited by 54,000
(d) debited by ₹ 6,000

3. Pick the odd one out from the following

(a) Interest allowed on a loan taken by the firm from a partner
(b) Rent due to a partner of the firm for using his premises for business purposes
(c) Salary due to the manager of the firm
(d) Salary due to a partner of the firm

4. Arif, Ravi and Ben are partners in a firm sharing profits and losses in the ratio of 6: 4: 1. Arif
guaranteed a minimum profit of ₹ 16,000 to Ben. The trading profit of the firm for the year
ending 31st March, 2021, was ₹1,32,000. Arif's share in the profits of the firm will be
A. Rs 72,000
B. Rs 68,000
C. Rs 69,600
D. Rs 16,000

5. How will a firm deal with a situation when its partnership deed provides for interest on capital,
but the profit earned by it is not enough to do so, at the rate mentioned in the deed?
6. Why is goodwill considered to be an intangible asset and not a fictitious asset?
7. List any two items which may appear on the credit side of a partner's fixed capital account.
8. Give the adjusting entry and closing entry for interest on loan taken by a partner from the firm,
when the firm follows the fluctuating capital method.
9. Give the formula for valuation of goodwill by the capitalisation of average profit method.
10. Give the adjusting entry for interest on capital allowed to a partner, when the firm follows the
fixed capital method.
11. State one difference between partner's loan account and partner's capital account.
12. Give the adjusting entry and the closing entry for recording commission allowed to a partner,
when the firm follows the fixed capital method.
13. State the provisions of the Indian Partnership Act,1932, regarding charging of interest on
drawings from a partner when the firm follows the fixed capital method
14. State the closing entries for
(i) Rent paid to a partner
(ii) Interest on loan allowed to partners
15. Name the provisions of the partnership act with respect to the interest on capital of partners
and the profit sharing ratio between partners.
16. What is meant by guaranteed partnership?
17. Give one reason, why partners are charged interest on drawings?
18. Distinguish between drawings against profit and drawings against capital.
19. . What is interest on capital? Give one reason, why it is allowed to partners?
20. What is the purpose of preparing a profit and loss appropriation account of a partnership
firm?
21. What is the adjustment and closing entry required at the time of finalisation of accounts for
interest on capital allowed to partners assuming that accounts are maintained under fixed
capital system?

22. Xen, Sam and Tim are partners in a firm. For the year ended 31st March, 2019, the profits of
the firm 1,20,000, were distributed equally amongst them, without providing for the
following provisions of the partnership deed

(i) Sam's guarantee to the firm that the firm would earn a profit of at least 1,35,000. Any shortfall
in these profits would be personally met by him.

(ii) Profits to be shared in the ratio of 2:2:1. You are required to pass the necessary journal
entries to rectify the error in accounting.

23. Peter, Max and Som were partners in a firm sharing profits and losses in the ratio of 4: 2: 1.
Their fixed capitals were ₹ 40,000, ₹30,000 and ₹ 30,000 respectively. Som was guaranteed a
profit of ₹ 39,000 by the firm.

It was decided that any loss arising because of guarantee would be shared by Peter and Max
equally. The trading profit of the firm for the year ended 31st March, 2018 was ₹ 1,47,000.

You are required to prepare the profit and loss appropriation account for the year 2017-18,
showing the distribution of profits.
24. The capital accounts of Amar and Harsh stood at ₹ 20,000 and ₹ 30,000 respectively after
the necessary adjustments in respect of drawings and net profit for the year ended 31st March,
2017. It was subsequently ascertained that interest on capital @ 12% per annum was not taken
into account while arriving at the divisible profits for the year.

During the year 2016-17, Amar had withdrawn ₹ 2,000 and Harsh's drawings were ₹ 1,000. The
net profit for the year amounted to ₹ 15,000. The partners shared profit and loss in the ratio of 3:2.

You are required to pass the necessary journal entries to rectify the error in accounting.

25. Mita, Rita and Sandra were partners in a firm, sharing profits and losses in the ratio of
2:2:1. Mita had personally guaranteed that in any year Sandra's share of profit, after allowing
interest on capital to all the partners @ 5% per annum and charging interest on drawings @ 4%
per annum, would not be less than ₹10,000.

The capitals of the partners on 1st April, 2015 were Mita ₹ 80,000, Rita ₹ 50,000 and Sandra ₹
30,000. The net profit for the year ended 31st March, 2016, before allowing or charging any
interest amounted to ₹ 40,000. Mita had withdrawn ₹ 4,000 on 1st April, 2015, while Sandra
withdrew ₹ 5,000 during the year.

You are required to prepare the profit and loss appropriation account for the year 2015-16.

26. Roshan, Mahesh, Gopi and Jai are partners sharing profits and losses in the ratio of
3:3:2:2. The balances of capital accounts on 1st April, 2015 were Roshan ₹ 8,00,000, Mahesh
₹5,00,000, Gopi ₹ 6,00,000 and Jai ₹ 6,00,000.
After the accounts for the year ended 31st March, 2016 were prepared, it was discovered that
interest on capital @ 10% per annum as provided in the partnership deed had not been credited
to the partners' capital accounts before the distribution of profits.

You are required to rectify the error by passing a single adjusting journal entry.

27. Veera and Sia are partners, sharing profits in the ratio of 3: 2. Profit for the year 2013-14,
amounting to 18,000 was distributed wrongly in the ratio of 2: 3.

You are required to rectify the error by passing an adjusting journal entry.

28. Asif and Ravi are partners in a firm, sharing profit and loss in the ratio of 3: 2. Their fixed
capital as on 1st April, 2016, were ₹ 6,00,000 and ₹4,00,000 respectively. Their partnership
deed provides for the following

(i) Partners are to be allowed interest on their capital @10% per annum.
(ii) They are to be charged interest on drawings @4% per annum.
(iii) Asif is entitled to a salary of 2,000 per month.
(iv) Ravi is entitled to a commission of 5% of the correct net profit of the firm before charging
such commission.
(v) Asif is entitled to a rent of 3,000 per month for the use of his premises by the firm.

The net profit of the firm for the year ended 31st March, 2017, before providing for any of the
above clauses was ₹ 4,00,000. Both partners withdrew ₹ 5,000 at the beginning of every month
for the entire year.
You are required to prepare a profit and loss appropriation account for the year ended 31st
March, 2017.

29. The partnership agreement of Rohit, Ali and Sneh provides that

(i) Profits will be shared by them in the ratio of 2:2:1.

(ii) Interest on capital to be allowed at a rate of 6% per annum.
(iii) Interest on drawings to be charged at the rate of 3% per annum.
(iv) Ali to be given a salary of₹ 500 per month.
(v) Ali's guarantee to the firm that the firm would earn a net profit of atleast ₹ 80,000 per annum
and any shortfall in these profits would be personally met by him.

The capitals of the partners on 1st April, 2013, were Rohit ₹ 1,20,000; Ali ₹ 1,00,000; Sneh
₹1,00,000
During the financial year 2013-14, all the three partners withdrew ₹ 1,000 each at the beginning
of every month.

The net profit of the firm for the year 2013-14 was 70,000. You are required to prepare for the
year 2013-2014 profit and loss appropriation account, partners' capital account.

30. Alex, John and Sam are partners in a firm. Their capital accounts on 1st April, 2011 stood at
₹1,00,000, ₹80,000 and ₹60,000 respectively. Each partner withdrew ₹ 5,000 during the
financial year 2011-12.

As per the provisions of their partnership deed

(i) John was entitled to a salary of ₹ 1,000 per month.
(ii) Interest on capital was to be allowed @ 10% per annum.
(iii) Interest on drawings was to be charged @ 4% per annum.
(iv) Profits and losses were to be shared in the ratio of their capitals.

The net profit of ₹ 75,000 for the year ended 31st March, 2012 was divided equally amongst the
partners without providing for the terms of the deed.

You are required to pass a single adjusting journal entry to rectify the error. (Show the working
clearly)
31. The fixed capital accounts of Shiv, Azeem and Angad, sharing profits and losses in the ratio
of 2: 2: 1, stood at ₹ 4,00,000, ₹ 6,00,000 and ₹ 2,00,000 respectively. The accounts for the
year ended 31st March, 2022, were drawn up and closed and the current account balances of
the partners were determined to be Shiv ₹ 35,000. Azeem ₹ 40,000 and Angad ₹ 25,000.
Subsequently, the following errors were discovered on 1st April, 2022

(i) Interest on capital @ 10% per annum had been allowed to the partners, although there was
no provision for it in the partnership deed.
(ii) Salary of ₹ 16,000 per annum to Shiv and ₹ 20,000 per annum to Azeem was not allowed to
them, despite a provision for salary in the partnership deed.
(iii) Commission of ₹ 24,000 was not allowed to Angad, despite a provision for commission in
the partnership deed.
You are required to prepare the adjusted current accounts of the partners on 1st April, 2022, to
rectify the lapse in accounting.

32. Ruma and Neha started business on 1st April, 2021, with fixed capitals of ₹ 4,00,000 and ₹
3,50,000 respectively.

On 1st October, 2021, they decided that their total capital (fixed) should be ₹ 8,00,000, in their
profits sharing ratio of 3: 2. Accordingly, they introduced extra capital or withdrew excess capital.

Their partnership deed provided for the following

(i) Interest on capital to be allowed @ 10% per annum.

(ii) A monthly salary of ₹ 1,000 each to be allowed to both Ruma and Neha.
(iii) Interest on drawings to be charged @ 18% per annum.

Ruma had withdrawn ₹ 12,000, during the year. As per the deed, the interest on her drawings
amounting to ₹ 1,080 to be charged from her. During the year ending 31st March, 2022, the firm
earned a net profit of ₹ 2,04,000 before charging manager's commission of ₹ 20,400 and
interest on bank loan of ₹ 4,000. You are required to

(a) Give the journal entry to close Ruma's drawings account

(b) Prepare profit and loss appropriation account for the year ending 31st March, 2022.
33. Reena, Meena and Tara are partners in a firm. They share profits and losses in a ratio of
1:2:2.
Following are their particulars:

Particulars Reena (Rs) Meena (Rs) Tara (Rs)

Capitals A/c 4,00,000 7,00,000 8,10,000
(1st April 2021)
Current A/c 60,000 (Dr) 80,000 (Cr) 1,00,000 (Cr)
(1st April 2021)
Drawings 10,000 in the 40,000 at the end 1,00,000 on
beginning of every of each quarter 1st September and
month 1,00,000 on
1st February

The terms of partnership agreement are given below:

(a) Interest on capital to be allowed @10% p.a.
(b) Interest on Drawings to be charged @ 12% p.a.
(c) 10% of the trading profit to be transferred to General reserve.
(d) Tara to get a commission @ 5% on the Net profit.
(e) Reena to be entitled to commission of 10% of the Net profit after charging her own
commission.
(f) Reena to get a guaranteed a minimum profit of Rs 1,00,000, any shortfall to be borne by
the remaining partners in their profit sharing ratio.
Additional information:
● Managers salary Rs 25,000 annually wasn’t accounted for.

Net profit for the year before the above adjustments and appropriations was Rs 9,20,000.
You are required to prepare Profit and Loss Appropriation Account for the year ended
31st March, 2022.

34. Om, Shiv and Vishnu are partners in a firm sharing profits and losses in the ratio of
3:2:1. On 1st April, 2021, their capitals were:
Om-Rs.6,00,000 (Cr), Shiv- Rs.4,00,000 (Cr.) and Vishnu- Rs.80,000 (Dr.)

Their Partnership Deed provided the following:

(a) Interest on Capital to be allowed @ 5% p.a. to the partners.
(b) Interest on Drawings to be charged @ 6% p.a.
(c) Shiv to be entitled to a salary of Rs.5,000 per month.
(d) Vishnu to be entitled to a rent of Rs. 24,000 yearly for the use of his premises by the firm.

Additional information:

Each partner withdrew Rs.1,000 in the middle of every month and Vishnu withdrew an
additional Rs.8,000 on 30th June, 2021.
Net Profit for the year 2021-22 before giving effect to the above adjustments amounted to Rs.
4,64,000.

You are required to prepare Profit and Loss Appropriation Account for the year ended 31st
March 2022.

35. Ajay and Vijay are in partnership sharing profits and losses in the ratio of 3: 1. On 1st April,
2021, their capitals were ₹ 1,00,000 and ₹90,000.

The terms of their partnership are as follows

(i) Interest on capital to be allowed at @ 6% per annum.

(ii) Interest on drawings to be charged @ 4% per annum.
(iii) Partners to get a salary of₹ 1,000 each per month.
(iv) Vijay to get a commission of 2% on the correct net profit.
(v) Any partner taking a loan from the firm to be charged interest on it @ 8% per annum.

Ajay had borrowed 10,000 from the firm on 1st October, 2021. Vijay had withdrawn ₹8,000 on
1st July, 2021. During the year ending 31st March, 2022, the firm earned a net profit of 60,000
before any of the provisions mentioned in the partnership deed.

You are required to prepare for the year ending 31st March, 2022
(a) Profit and loss appropriation account.
(b) Ajay's capital account

36. The partnership agreement of Rohit, Ali and Sneh provides that
(i) Profits will be shared by them in the ratio of 2:2:1.
(ii) Interest on capital to be allowed at the rate of 6% per annum.
(iii) Interest on drawings to be charged at the rate of 3% per annum.
(iv) Ali to be given a salary of₹ 500 per month.
(v) Ali's guarantee to the firm that the firm would earn a net profit of at least. 80,000 per annum
and any shortfall in these profits would be personally met by him.

The capitals of the partners on 1st April, 2021, were Rohit=₹ 1,20,000; Ali =₹ 1,00,000; Sneh
=₹1,00,000

All the three partners withdrew ₹ 1,000 each at the beginning of every month. The net profit for
the year 2021-22 was 70,000.

You are required to prepare for the year 2021-2022

(a) Profit and loss appropriation account.

(b) Ali's capital account.
37. Anita and Tony, each doing business as sole proprietors, started a partnership on 1st April,
2018. Anita brought in plant and machinery valued at ₹ 5,00,000 whereas Tony brought in
furniture costing ₹ 50,000 and ₹ 7,00,000 in cash.

Since the business needed more funds, Tony gave a loan of ₹ 2,00,000 to the firm on 30th
June, 2018.

Their partnership deed provided for

(i) Interest on capital to be allowed @ 10% per annum.

(ii) Interest on drawings to be charged @ 6% per annum.
(iii) Anita to be given a commission of 4% on the corrected net profits before charging
commission.
(iv) Tony to be given a salary of ₹ 12,000 per annum.

Tony withdrew ₹ 5,000 at the end of every month and Anita withdrew ₹ 30,000 on 1st August,
2018.
The net profit of the firm, for the year 2018-19, after debiting Tony's salary of ₹ 12,000 per
annum but before considering any interest due to and due from the partners, was ₹ 4,00,000.

You are required to prepare for the year 2018-19

(a) Profit and loss appropriation account.

(b) Partners' capital account

38. Ravi and Tiku are partners in a firm. According to their partnership deed

(i) Interest on capital will be allowed @ 5% per annum.

(ii) Interest on drawings will be charged @ 4% per annum.
(iii) Each partner will be given a salary of ₹ 1,000 per month.
(iv) Partners will share profits and losses in the ratio of 2: 1.

Following are the particulars of the capitals and drawings of the partners

Capital (1st April, 2017) Ravi (₹) Tiku (₹)

60,000 50,000
Drawings
(made on 1st June, 2017) 3,000 6,000

Ravi had taken a loan of ₹10,000 from the firm on which interest of ₹ 200 was due by him to the
firm. The accounts for the year 2017-18 showed that the firm had made a profit of ₹ 77,000
before taking into account any interest, partners' salaries and manager's salary of ₹ 18,000. You
are required to prepare P&L Appropriation A/c and Partners Capital A/c
39. Shankar and Manu are partners in a firm. On 1st April, 2014, their fixed capital accounts
showed a balance of 2,00,000 and ₹ 4,00,000 respectively. On this date their current account
balances were ₹50,000 and ₹ 1,00,000 respectively. On 1st January, 2015, Shankar introduced
additional capital of ₹ 200.000 while Monu gave a loan of ₹ 150.000 to the firm.

The clauses of their partnership deed provided for

(i) Interest on capital to be allowed at the rate of 10% per annum.

(ii) Interest on drawings to be charged at the rate of 12% per annum.
(iii) Profits to be shared by them in the ratio of 3: 2.
(iv) 10% of the correct net profit to be transferred to general reserve.

During the financial year 2014-15, both partners withdrew ₹ 6,000 each at the beginning of
every quarter. The net profit of the firm, before any interest, for the financial year 2014-15 was ₹
5,00,000.
You are required to prepare for the year 2014-15

(a) Profit and loss appropriation account.

(b) Partners' fixed capital account.
(c) Partners' current account.
(d) Partner's loan account.

40. Rahim and Sudesh, the two partners of a business firm, agreed to appropriate the profits of
their firm on the following terms

(i) Interest is payable on capital @ 5% per annum.

(ii) Rahim will be entitled to a salary of₹ 500 per month.
(iii) Interest on loan to be given by the firm to the partners @ 10% per annum.
(iv) Interest on drawings to be charged from the partners @ 5% per annum.
(v) Sudesh will get commission @ 1% on the sales made during the year.
(vi) Rahim is entitled to a rent of 25,000 per annum for allowing the firm to carry on the business
in his premises.

The net profit of the firm for the year ended 31st March, 2013, was ₹1,80,000 before taking into
account any of the above terms
Rahim (₹) Sudesh (₹)

Capital balances on 1st April, 2012 1,50,000 1,40,000

Loan advanced on 1st October, 2012 - 1,00,000
Drawings made during the year During the year 2012-13, 40,000 30,000

sales of the firm amounted to ₹ 7,00,000

From the above information, prepare:
(a) Profit and loss appropriation account.
(b) Partners' capital account.

41. Ted, Phil and Gorden are partners in partnership sharing profits two-fifths, two-fifths and
one-fifth and throughout the half year ended 31st March, 2002, their capital accounts have
remained unchanged at ₹ 60,000,₹ 40,000 and ₹ 30,000 respectively.

Their current account balances on 1st October, 2001 were

Phil 8,550 (Dr)

Ted 12,000 (Cr)
Gorden 6,550 (Dr)

During this period,, Ted withdraws ₹ 200 at the beginning of each month, Gorden withdrew ₹400
at the end of each month while Phil withdrew ₹ 1,800 during the period of six months. Their
partnership deed provides that

(i) Partners are allowed interest on capital @ 5% per annum.

(ii) Partners are allowed or charged interest on current account balances @ 4% per annum.
(iii) Interest on drawings @ 6% per annum.
(iv) Gorden is entitled to a salary of 500 per month
(v) Ted is entitled to a commission of 5% of the correct net profit of the firm.
(vi) Phil is entitled to a commission of 5% of the correct net profit of the firm after charging such
commission.

During the half year ended 31st March 2002, the net profit of the firm was ₹ 2,07,000 after
charging Gorden's salary which had been debited to wages and salaries account.

You are required to prepare the profit and loss appropriation account of the firm.