Fund Partnership

Fundamentals of
Partnership Firms
Index
Partnership : features, partnership deed. Provisions of the
Indian partnership act 1932 in the absence of partnership
deed.
Fixed v/s fluctuating capital accounts, division of profit among
partners, interest n drawing, salary and profit sharing ratio),
preparation partners, Past adjustments (relating to interest
on capital, of P&L appropriation account, guarantee of
minimum profits to Partner

Businessmen wants
Growth of the business
To earn the maximum profits

Advantages of sole proprietorship
Quick decision making
No conflict Secrecy
Work is directly related to the profits

Disadvantages of sole proprietorship
Less Chances Of Growth And Expansion Lack Of Capital
Lack Of Managerial Skills Lack Of Continuity

What is the solution.???
Partnership
Meaning- Partnership
The Indian Partnership Act 1932, Section 4, defines
partnership as
“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
C
Carried on by all or any of them acting for all
L
Lawful business
A
Association of two or more persons
A
Agreement between the Partners
P
Profit sharing
Carried on by all or any of them acting for all
Partnership business must be carried on by all or any of
them acting for all.
Mutual and implied agency is the essence of partnership.

Lawful business
The agreement should be for carrying on some legal
business to make profit.
Association of two or more persons
To form a partnership, there must be at least two
persons.
Regarding the maximum number of persons,
it is limited to 10 in banking business
and
20 in other business.
Agreement between the Partners
The relationship among the partners is established by an

agreement.
Such agreement forms the basis of their mutual

relationship.
Profit sharing
The agreement between the partners must
be to share the profits or losses of the business.

Meaning- Partnership deed
Partnership deed is the written agreement between
partners.
Article of partnership
This agreement contains all the terms and conditions

agreed between partners.
Rights, duties and liabilities of all partners are stated in

the partnership deed
Contents of - Partnership deed
• Name of the firm
• Names and addresses of all partners
• Date of commencement of partnership
• Amount of capital contributed or to be contributed by each

partner
• Rules regarding operation of bank accounts
• Ratio in which profits are to be shared
• Interest, if any, on partners' capital and drawings;
• Interest on loan by the partners(s) to the firm
• Salaries, commissions, etc. if payable to any partner(s)
• Settlement of accounts on dissolution of the firm

Provision in the absence of partnership deed
Interest on partner’s Capital

No interest is allowed on Capitals of the Partners.
If as per the partnership deed, interest is allowed, it will

be paid only when there is profit. If loss, no interest will
be paid.
Interest on Drawings
No interest will be charged on drawings made by the
partners.
Provision in the absence of partnership deed
Interest on loan
If any partner, apart from his share capital, advances
money to the firm as loan,
he
is entitled to interest on
such amount at the rate of 6% per annum.
Salary/ Commission to partner

No partner is entitled to salary/ commission from the
firm, unless the partnership deed provides for it.
Profit sharing ratio

The partners shall share the profits of the firm equally
irrespective of their capital contribution.
PROBLEM
X and Y are partners in a firm. They do not have any partnership

agreement (partnership deed). What should be done in the
following cases?
1. X spends twice the time that Y devotes to business. X claims

that he should get a salary of Rs 6,000 per month for the
extra time spent
2. Y has provided a capital of Rs 50,000 whereas X has provided
Rs 5,000 only as capital. X however has provided Rs 10,000 as
loan to the firm. What interest (in any will be given to X and Y
3. X wants to introduce son Z into their business. Y objects to his
proposal
4. Y wants that the profits should be distributed in the ratio of
their capital but X wants that is should be distributed equally.
Solution
1. Salary is not payable to any partner. Therefore X is not
entitled to any salary
PROBLEM

following cases?

extra time spent
proposal
Solution
2. Interest on capital is not payable to any partner. X and Y will

not get interest on their capital. Interest on /X loan is allowed
at 6% p.a. thus x will get interest on loan at 6% p.a.
PROBLEM

following cases?

extra time spent
proposal
Solution
3. A person cannot be introduced as partner without the consent

of all partners
PROBLEM

following cases?

extra time spent
proposal
Solution
4. Profit will be shared equally between X and Y after deducting

interest on X loan of 6% p.a. on Rs 10,000
In +1 we had studied about
Accounting process
Trial Financial
Journal Ledger
balance accounts
At the time of sole proprietorship
Trading account
Gross profit/gross loss
Profit and loss account
Net profit/net loss

Trading A/C & Profit And Loss Account
Particulars Amount Particulars Amount

To opening stock 1,50,000 By sales 9,00,000
To Purchases 4,00,000 By closing stock 1,00,000
To Direct Exp 2,50,000
To Gross Profit 2,00,000
10,00,000 10,00,000
To Indirect Exp 70,000 By Gross Profit 2,00,000
To Net Profit 1,80,000 By indirect Income 50,000
2,50,000 2,50,000
Balance sheet
Liability Amount Assets Amount
Capital 6,00,000
Add net profit 1,80,000

At the time of partnership
Trading account
Gross profit/gross loss
Profit and loss account

Net profit/net loss
Profit and loss appropriation account

Divisible profit/loss among partners
Profit and loss Appropriation A/c
During partnership Profit and Loss Appropriation Account‘ is
prepared.
This is merely an extension of the profit and loss account

and is prepared to show
how
net profit is to be distributed among the partners.

Items of profit and loss
appropriation A/c
Interest on partner’s Capital

General reserves
Salary/ Commission to partner
Profit and loss A/c
To salary to Employee XXX
By Gross profit XXXXX
To interest on partner’s loan XXX By Loss transferred
XXXX
To Rent paid to partner’s XXX to P/L App
To Manger commission XXX
To profit transferred to P/L App XXXX
Charge against profit

/revenue

and loss App
To Net Loss ( if any) XXXX By Net Profit XXXX
To General Reserves XXXX By Interest on drawings XXXX
To Partner Salary
XXXX
To Interest On Capital XXXX
To Partners Commission XXXX
To Profit transferred to Partners XXXX
capital if any
XXXXX XXXXX
Difference
Basis Profit and loss A/c Profit and loss App A/c
Prepared to ascertain profit Prepared to show the

Objective earned and loss incurred appropriation of profit
from the main course of
business.
Partnership Items in this account may or Items in this account are

Agreement may not be related to the shown as per the partnership
partnership agreement agreement.
Prepared by following the Prepared by following

Concept matching concept
or Basis partnership agreement
Starts with Begins with gross profit or Begins with net profit/ loss or
gross loss. the opening balance that is
available
Partners' Capital Accounts
In case of partnership firm, the transactions relating to
partners are recorded in their respective capital
accounts.
Normally, each partner's capital account is prepared

separately or in a tabular form as follows
Partners Capital A/c

Particulars A B Particulars A B
To Bank (withdrawn) XXXXX XXXXX By Bank XXXXX XXXXX

To Drawing XXX XXX By Bank (additions) XXXX
To interest Drawing XXX XXX By Salary XXXX XXX
By Interest on cap XXXX XXX
To balance c/d XXX XXX By Commission XXXX XXXXX
By P/L App XXXXX XXXX
XXXXX XXXXX XXX XXXX
Types of
capital
Fluctuating
Fixed capital
capital
Fluctuating capital
•Only one account, viz., the capital account for each partner, is
maintained.
•It records all adjustments relating to drawings, interest on

capital, and interest on drawings, salary and share of profit or
loss in the capital account itself.
•As a result, the balances in the accounts keep on fluctuating.
Fluctuating capital

Fixed Capital
Two accounts are maintained for each partner viz.,
(i) Capital account
(ii) Current account.
•The capital account will continue to show the same

balance from year to year unless some amount of capital is
introduced or withdrawn.
• Current account, Includes transactions relating to

drawings, interest on capital, interest on drawings, salary,
share of profit or loss etc., are recorded
Fixed Capital
To Bank (withdrawn) XXXXX XXXXX By Balance XXX XXXXX

To balance c/d XXX XXX By Bank (additions) XXXX
Capital withdrawn/drawing
against capital
Drawings against profits
Partners Current A/c

To Balance b/d XXXX XXXX By Balance b/d XXXX XXXX

To Drawing XXX XXX By Salary XXXX XXX
To interest Drawing XXX XXX By Interest on cap XXXX XXX
To balance c/d XXX XXX By Commission XXXX XXXX
By P/L App XXXX XXXX
Difference
Basis Drawings against capital Drawings against profits
Where It is debited into capital It is debited in

debited account drawings account
Part It is a part of It is debited in drawings

capital. account
Effect It reduces the It does not reduce

capital. the capital
Difference
Basis Fixed capital Fluctuating capital
Capital normally remains Capital is changing from

Change in unchanged except under period to period.
capital special circumstances.
Partner has two accounts, Partner has only one

Number of namely, capital account and account i.e., Capital account
Accounts current account
All adjustments relating to All adjustments relating to

Adjustments partners are recorded in partners are recorded directly
the Current Accounts in the Capital Accounts itself
Capital Account shows always Capital Account shows

Balance a credit balance. always a credit balance.
Current account may
sometimes show debit or
credit balance
Journal entries relating to interest on capital
Transaction Journal
For interest on capital Particulars Debit Credit

Profit and Loss App Dr XXXX
To Interest on capital A/c XXXX
Interest on capital Dr XXXX

To partner’s Capital/current XXXX



Journal entries relating to salary to partners
Transaction Journal
For salary to partners Particulars Debit Credit

Profit and Loss App Dr XXXX
To Partners Salary A/c XXXX
Partners Salary Dr XXXX

To partner’s Capital/Current XXXX

To Partners Salary XXXX

By Salary XXXX XXX

Journal entries relating to Commission to partners
Transaction Journal
For Commission to Particulars Debit Credit

Profit and Loss App Dr
partners To Partners Commission A/c
XXXX
XXXX
Partners Commission Dr XXXX



By Partners XXXX XXX

Commission
Journal entries relating to interest on Drawings
Transaction Journal
For interest on Drawings Particulars Debit Credit

Interest on Drawings Dr XXXX
To Profit And Loss App A/c XXXX
To partner’s Capital/current Dr XXXX


By Interest On Drawings XXXX

To Int on Drawings XXXX XXX

Journal entries relating when there is profit
Transaction Journal
For profit transferred Particulars Debit Credit

Profit and Loss App Dr
to partners Capital To partner’s Capital or current
XXXX
XXXX

To Partners capital A/c XXXX
Profit transferred to
Capital/current A/c

By Profit and Loss XXXX XXX

App
Journal entries relating when there is Loss
Transaction Journal
For Loss transferred to Particulars Debit Credit

partner’s Capital/ current Dr
partners Capital To Profit and Loss App
XXXX
XXXX

By Partners capital A/c XXXX
Loss transferred to
Capital/current A/c

To Profit and Loss XXXX XXX

App
Profit and loss A/c
To interest on partner’s loan XXX By Net profit XXXXX

To General Reserves XXXX By Net profit XXXX
To Partner Salary XXXX By Interest on drawings XXXX
capital if any
XXXXX XXXXX


Interest on capital
Interest on capital
•If the partnership agreement specifically provides for the
payment of the interest on the capital contributed by the
partners, the same has to be allowed.
• Interest on the opening balance at the beginning of the
year is allowed
• If additional capital is invested/withdrawn during the year,

interest for the relevant period is calculated.

To Partner Salary By Interest on drawings XXXX
XXXX
capital if any
and loss App
XXXXX (unless specified) XXXXX
Calculate
Calculation of opening capital when closing capital is given
Calculation of opening capital
Particulars A B
Closing capital XXXXXX XXXXXX
Less:- share of profit XXXXXX XXXXXX
Add Drawing during year XXXXXX XXXXXX

Less :- Additional Capital XXXXXX
Opening capital XXXXXX XXXXXX
Calculate
Raj and Neeraj are partners in a firm. Their capitals as on 1st April 2011
were Rs 2, 50,000 and Rs 1, 50,000. They share profits equally. On
July 1st 2011, they decided that their capital should be Rs
2, 00,000 each. The necessary adjustment in the capital was made by
introducing or withdrawing cash. Interest on capital is allowed at 8% p.a.
Computer interest on capital for both the partners for the year ending on
March 31st.
Interest on Raj capital
x 8 x 3 = 5,000
On Rs 2,50,000 for 3 months = 2,50,000
10 12
x 8 x 9 = 12,000
On Rs 2,00,000 for 9 months = 2,00,000
10 12
17,000
Interest on Neeraj Capital
x 8 x 3 = 3,000
On Rs 1,50,000 for 3 months = 1,50,000
10 12
8 9 = 12,000
On Rs 2,00,000 for 9 months = 2,00,000 x x
10 12
15,000
Calculate
A and B are partners in a firm. Their capital accounts showed the balance
on April 1st 2003 as Rs 4, 00,000 and Rs 3, 00,000 respectively. On
august 1st 2003 they introduced further capital of Rs 50,000 and Rs
40,000 respectively. B withdrew Rs 15,000 from his capital on March 1st
2004. Interest is allowed @ 6% p.a. on the capitals. Compute interest on
capital for the year ending March 2004.
Interest on A’s Capital
= 4,00,000 x 6 x 4 i.e. from 1st April

= 8,000
100 12 2003 to 31st July
2003
6 8 = 18,000 i.e. from 1st

= 4,50,000 x x
100 12 August 2003 to
31st March 2004
= 26,000
Calculate
A and B are partners in a firm. Their capital accounts showed the balance
on April 1st 2003 as Rs 4, 00,000 and Rs 3, 00,000 respectively. On
august 1st 2003 they introduced further capital of Rs 50,000 and Rs
40,000 respectively. B withdrew Rs 15,000 from his capital on March 1st
2004. Interest is allowed @ 6% p.a. on the capitals. Compute interest on
capital for the year ending March 2004.
Interest on B’s Capital

= 3,00,000 x 6 x 4 i.e. from 1st April
= 6,000
100 12 2003 to 31st July
2003
6 7 = 11,900 i.e. from 1st

= 3,40,000 x x
100 12 August 2003 to
Feb 29th 2004
6 1 = 1,625 i.e. from 1st

= 3,25,000 x x
100 12 March 2004 to
31st March 2004
= 19,525
Calculate When closing capital is given
A ,B sharing P/L the ratio of 3:1. Their capitals at the end of the
financial year 2005-2006 were Rs 6, 00,000 and Rs 3, 00,000. During
the year drawings were A Rs 80,000 and B drawings were Rs 40,000 had
been debited to partner’s capital. Profit before charging interest on
capital for the year was Rs 80,000 been credited in their profits sharing
ratio. B had brought additional capital of Rs 70,000 on October 1st 2005.
Calculate interest on capital @ 12% p.a.
Particulars A B
Closing capital ( 31-3-2006 6,00,000 3,00,000
Less:- share of profit
added in the ratio of 3:1) 60,000 20,000
Add Drawing during year 80,000 40,000
Less :- Additional Capital 70,000

Opening capital ( 1-4- 2009 6,20,000 2,50,000
Particulars A B
Closing capital ( 31-3-2006 6,00,000 3,00,000
Less :- Additional Capital 70,000

Opening capital ( 1-4- 2009 6,20,000 2,50,000
Interest on A’s = 6,20,000 x

12 x 12 = 74,400
Capital 10 12
12 6 = 15,000
= 2,50,000 x x
Interest on B’s 100 12
Capital
12 x 6 = 19,200
= 3,20,000 x
100 12
34,200
Calculation of profit sharing ratio
on the basis of capital
When capital remains When capital is changed

unchanged during the year during the year
Simple Method Effective capital

employed method
Calculate When capital remains unchanged
A , B and C started a business in partnership. A contributes Rs 50,000 .
B Rs 40,000 and Rs C Rs 70,000. Partners sharing/distribute the profits
in their capital ratio and profit during the year is Rs 32,000
A B C
Profit sharing ratio would = 50,000 : 40,000 : 70,000

be
= 5 : 4 : 7
32,000 x 5
A share in the profits = = 10,000
16
32,000 x 4
B share in the profits = = 8,000
16
C share in the profits 32,000 x 7

= = 14,000
16
Calculate When capital keeps on changing (effective capital employed
A , B and C started a business in partnership. A contributes Rs 50,000
for the whole year. B introduces Rs 40,000 at first and increased to Rs
46,000 at the end of four months but withdrew Rs 16000 at the end of
nine months. C invests Rs 80,000 at first but withdraws Rs 20,000 at the
end of five months.
Firms earned a profit of Rs 23,750 during the year. You are required to
show the division of profits on the basis of the effective capital employed
by each partner during the year.
Effective capital of A = 5,00,000 x 12 (Months) = 6,00,000

Effective capital of B = 40,000 x 4 (Months) = 1,60,000
= 46,000 x 5 (Months) = 2,30,000

= 30,000 x 3 (Months) = 90,000
4,80,000
Effective capital of C = 80,000 x 5 (Months) = 4,00,000
= 60,000 x 7 (Months) = 4,20,000

8,20,000
Profit sharing ratio would = 6,00,000 : 4,80,000 : 8,20,000
be
= 30 : 24 : 41
Calculate When capital keeps on changing (effective capital employed
A , B and C started a business in partnership. A contributes Rs 50,000
for the whole year. B introduces Rs 40,000 at first and increased to Rs
46,000 at the end of four months but withdrew Rs 16000 at the end of
nine months. C invests Rs 80,000 at first but withdraws Rs 20,000 at the
end of five months.
Firms earned a profit of Rs 23,750 during the year. You are required to
show the division of profits on the basis of the effective capital employed
by each partner during the year.
Profit sharing ratio would = 6,00,000 : 4,80,000 : 8,20,000

be
= 30 : 24 : 41
23,750 x 30
A share in the profits = = 7500
95
23,750 x 24
B share in the profits = = 6,000
95
23,750 x 41
C share in the profits = = 10,250
95
Problem
Shiv and Hari entered into the partnership on 1st April 2013,
contributing Rs 5, 00,000 and Rs 2, 00,000 respectively. Hari
also introduced Rs 1, 00,000 as additional capital on 1st July,
2009. They agreed to share profits and losses in the ratio of
3:2.
Following information is provided regarding the partnership
1. Shiv and Hari each are allowed a salary of Rs 5,000 per
quarter
2. Interest is to be allowed on capital @ 8% p.a. and charged
on drawing at 10% p.a.
3. Drawing of Shiv and Hari during the year Rs 12,000 and Rs
10,000 respectively. Profit as at 31st March, 2014 before
the above mentioned adjustment was Rs 1, 96,000
Prepare necessary accounts
If in question nothing is mentioned capital will be
treated as fluctuating
If in question date of drawings is not mentioned

interest will be charged for six months
solution Profit and loss Appropriation A/c
To Partner Salary
By Net profit 1,96,000
Shiv 20,000 (5000 x 4)
Hari 20,000 (5000 x 4) By interest on drawings
40,000
Shiv 600
To Interest On Capital Hari 500 1,100
Shiv 40,000
InterestInterest
On Capital:-
On Drawings:-
Fluctuating
Hari 22,000capital ( 62,000
if nothing mentioned Note:-If date of drawing
To profit transferred toDrawings 810 xx 36
xx given =
Shiv
Hari Capital == 2,00,000
12,000
is not
Interest On Capital:- = 4,000
interest will 6,00
Shiv 57,060 10
100 12
12
be charged8
for 6 months
12
Hari 38,040 95,100 = 40,000
Shiv Capital = 5,00,000 x x
Hari 10,000 xx 810
10 xx 96
12 = 5,00
HariDrawings
Capital == 3,00,000 18,000
1,97,100 100
10 12
12 1,97,100

Particulars SHIV HARI Particulars SHIV HARI
To Drawing 12,000 10,000 By Bank 500,000 2,00,000

To interest Drawing 600 500 By Bank 1,00,000
By Salary 20,000 20,000
By interest on cap 40,000 22,000
To balance c/d 6,04,460 3,69,540 By P/L App 57,060 38,040
6,17,060 3,80,040 6,17,060 3,80,040
Problem
Sarita and vandana were partners in a firm sharing profits in the ratio
of their capitals contributed on commencement of business which were
Rs 4,00,000 and Rs 3,00,000 respectively. The firm started business
on april 1 2014. According to the partnership agreement.
Every year Rs 50,000 or 10% of the profits whichever is more will be
donated for providing school fess of specially able children
Interest on capital is to be allowed at 12% p.a. and interest on drawing
is to be charged at 10% p.a.
Sartia and vandana are to get a monthly salary of Rs 10,000 and Rs
15,000 respectively
The profits for year ended march 31st march before making above
appropriations was Rs 6, 00,000. The drawings of Sartia and Vandana
were Rs 2,00,000 and Rs 2,50,000 respectively. Interest on drawings
amounted Rs 10,000 and sartia and Rs 12,500 for Vandana

solution Profit and loss Appropriation A/c
Particulars
Values highlighted Amount
in his case is firm is sensitiveParticulars Amount
towards the education
of provision
To speciallyforable children
donation( 10% of 60,000 By Net profit 6,00,000
6,00,000
By interest on drawings
To Partner Salary
Sarita 1,20,000 3,00,000 Sarita 10,000
Vandana 1,80,000 Vandana 12,500 22,500
To Interest On Capital Interest On Capital:-
Sarita 48,000
Vandana 36,000 84,000
12 12 = 48,000
Sarita = 4,00,000 x x
To profit transferred to 100 12
Sarita 1,02,000
Vandana 76,500 1,78,500 12 12 = 36,000
Vandana = 3,00,000 x
6,22,500
x
6,22,500
100 12
Particulars Sarita Vandana Particulars Sarita Vandana
To Drawing 2,00,000 2,50,000 By Bank 4,00,000 3,00,000

To interest Drawing 10,000 12,500 By Salary 1,20,000 1,80,000
By Interest on Cap 48,000 36,000
By P/L App 1,02,000 76,500
To balance c/d 4,60,000 3,30,000
6,70,000 5,92,500 6,70,000 5,92,500
Problem
A , B and C were partners with the capital of Rs 60,000 , RS 60,000
and Rs 80,000. Their current account balance were A Rs 10,000 and Rs
5,000 and C Rs 2000 (Dr.). according to the partnership deed the
partners deed the partners were entitled to interest on capital @ 5%. C
will get a salary of Rs 6,000 p.a. the profits were to be divided as
follows.
1. The first Rs 20,000 in proportions to their capital
2. Next Rs 30,000 in the ratio of 5:3:2.
3. Remaining profits to be shared equally
The firm made a profit of Rs 1, 56,000 before sharing any of the

above items. Prepare the profit and loss appropriations accounts and
pass necessary journal entry for the appropriations of profit.

To Salary ( C) 6,000 By Net profit 15,6000
To Interest On Capital
A’s Current 3,000
B’s Current 3,000
C’’s Current 4,000 10,000
To profit transferred to
A’s Current 51,000
B’s Current 45,000
C’’s Current 44,000 1,40,000
15,6000 15,6000
Distribution of profits
Particulars A B C
First Rs 20,000 in capital ratio 6,000 6,000 8,000
3:3:4
Next Rs 30,000 in 5:3:2 15,000 9,000 6,000
remaining Rs 90,000 equally 30,000 30,000 30,000
Total 51,000 45,000 44,000


To Salary ( C)
6,000 By Net profit 15,6000
A’s Current 3,000
B’s Current 3,000
C’’s Current 4,000 10,000
B’s Current 45,000
C’’s Current 44,000 1,40,000
15,6000 15,6000
Particulars X Y Z Particulars X Y Z
To balance 60,000 60,000 80,000 By Balance 60,000 60,000 80,000
60,000 60,000 80,000 60,000 60,000 80,000

To balance 2,000 By Balance 10,000 5,000
By Interest on cap 3,000 3,000 4,000
By Salary 6,000
To balance c/d 64,000 53,000 52,000 By P/L App 51,000 45,000 44,000
64,000 53,000 54,000 64,000 53,000 54,000
Manager Partners
commission commission
Partner’s commission
•Commission is allowed to a partner for his service if all partners
agree to such a payment.
•In the absence of a specific condition in the partnership deed, a

partner is not entitled to any salary or commission for his service
rendered to the firm.
•When commission is allowed it may be stated as ‘payable on the

profit before charging commission’ or ‘payable on the profit after
charging commission’.
Manager commission
Profit and loss A/c
To salary to employee XXX
To interest on partner’s loan XXX
To Manger commission XXX Charge against
To profit transferred to P/L App XXXX profit /revenue
Partners commission
To Partner Salary By Interest on drawings XXXX
XXXX
Charge against
To Profit transferred to Partners XXXX profit and loss
capital if any App
XXXXX XXXXX
On profit before charging such commission
x Rate
Net profit
100
Example:- If the profit before charging his commission is

22,000 and the manager/partner is entitled a commission of
10% on the profit before charging such commission
x 10
commission = 22,000
100
= 2,200
On profit after charging such commission
x Rate
Net profit
100 + Rate
Example:- If the profit before charging his commission is

22,000 and the manager/partner is entitled a commission of
10% on the profit after charging such commission
x 10
commission = 22,000
110
= 2,000
Problem
A and B are partners sharing profits and losses in the ratio of 3:2 with
the capital of Rs 5,00,000 and Rs 2,50,000 respectively. Each partner is
entitled to 10% interest on his capital. A is entitled to 10% on net profit
remaining after deducting interest on capital but before charging any
commission. B is entitled to a commission of 8% of net profit remaining
after deducting interest on capital and after charging all commission. the
net profit for the year prior to calculation on interest was Rs 3, 75,000.
Prepare profit and loss appropriation account.

To Interest On Capital By Net profit 3,75,000
A’s 50,000
25,000 75,000
B’s
To Commission to A 30,000
To Commission to B 20,000 50,000
To profit transferred to B will get commission after

Commission charging
to A
A’s 1,50,000
B’s 1,00,000 = 3,75,000 – =75,000
2,50,000 – 30,000
3,75,000 – 75,000 = 3,00,000
3,75,000 3,75,000
Commission 8
3,00,000 10
Commission 2,70,000 x x= 20,000= 30,000
108 100
Problem
the capital of Rs 10,00,000 and Rs 5,00,000 respectively. Each partner
is entitled to 8% p.a. interest on his capital. B is entitled to a salary of
Rs 3,500 p.m. together with a commission of 10% of net profit remaining
after deducting interest on capital and salary and after charging his
commission. The profits for the year prior to calculation on interest on
capital but after charging salary of B amounted to RS 4, 50,000. Prepare
partners capital account when capital are fixed.

To Salary ( B ) 42,000 By Net profit
To Interest On Capital 4,50,000 + 42,000 4,92,000
B’s Current 40,000 1,20,000
To Commission to B 30,000
B will get commission after charging
A’s Current 2,00,000= 4,92,000 – 42,000 – 1,20,000
B’s Current 1,00,000 3,00,000
4,92,000 10 4,92,000
Commission 3,30,000 x = 30,000
110
Problem
A and B are partners with the capital of Rs 5,00,000 and Rs 3,00,000
respectively and share profit and losses in the ratio of 3:2. Interest on
capital is agreed @ 6 p.a. B was allowed to get an annual salary of Rs
60,000. During the year 2009-2010, the profits prior to the calculation
of interest on capital but after charging B’s salary amounted to Rs
1,80,000. A provision of 5% of the profits is to be made in respect of
commission to the manager. Prepare profit and loss appropriation account
showing the distribution or profits and the partners capital account for
the year ending march21, 2010
Profit and loss A/c
To Manager commission ( 5% of 2,40,000) 12,000 By Net profit 2,40,000
To net profit transferred to P/L App 2,28,000

To B’ Salary By Net profit 2,28,000
60,000
A 30,000
B 18,000 48,000
A 72,000
B 48,000
1,20,000
2,28,000 2,28,000
To balance c/d 6,02,000 4,26,000 By Balance b/d 500,000 3,00,000

By Salary 60,000
By Interest on Cap 30,000 18,000
By P/L App A/c 72,000 48,000
,26
6,02,000 4,26,000 6,02,000 4,26,000
Problem
X and y are equal partners and their capital as on 1s April, 2009 were Rs
2,50,000 and Rs 1,80,000 respectively. On 1st July, 2009 the decided
that their capital should be Rs 2, 00,000 each. The necessary
adjustments in the capital were made by withdrawing or introducing cash.
According to the partnership deed
1.Interest on capital 8% p.a.
2.X gets salary of Rs 4000 p.a.
3.Y get salary Rs 800 per month ( Y withdraws his monthly salary)
4.Manager will get a commission of 10% of the profit before any
adjustment
Net profit of the year before above adjustment was Rs 80,000
Profit and loss A/c
To Manager comm ( 5% of 80,000 8,000 By Net profit 80,000
To net profit tran to P/L App 72,000

To Interest On Capital By Net profit 72,000
X 17,000
Y 15,600 32,600
To Salary
X 4,000
Y 96,00 13,600
X 12,900
Y 12,900 25,800
72,000 72,000
To Salary By Net profit 72,000
X 17,000
Y 15,600 32,600
X 4,000
Y 96,00 13,600
X 12,900
Y 12,900 25,800
72,000 72,000
To Bank AC 50,000 By Balance b/d 2,50,000 1,80,000

To balance c/d 2,00,000 2,00,000 By Bank 20,000
2,50,000 2,00,000 2,50,000 2,00,000
Partners current A/c

To Drawings 96,00 By Interest on Cap 17,000 15,600

By Salary 4,000 96,000
To balance c/d 33,900 28,500 By P/L App A/c 12,900 12,900
33,900 38,100 33,900 38,100
Interest on
partner’s Loan
Interest on partners Loan
If any partner, apart from his share of capital, advances money
to the firm as a loan,
he is entitled to interest on such amount
at the rate of 6 % per annum.

Shall be paid even if there are losses (charge against the
profits)
Profit and loss A/c

To salary to employee XXX
To interest on partner’s loan XXX
Charge against
profit /revenue
Problem
A and B into partnership on 1st April 2009 without any partnership deed
they introduced capital of Rs 5,00,000 and Rs 3,00,000 respectively. On
31st Oct 2009, A advanced Rs 2, 00,000 by way of loan to the firm
without any agreement as to interest. The P/L A/C for the year ended
31st march 2010 showed a profit of Rs 4, 30,000 but the partners could
not agree upon the amount of interest on loan to be charged and the basis
of division of profits. Pass journal entry for the distribution of the
profits between the partners, capital account and loan account of A
Profit and loss A/c
To interest on A loan 5000 By Net profit 4,30,000
4,30,000 4,30,000
Particulars Amount
Interest On partnersParticulars
loan will be 6% Amount
To profit transferred to By Net profit 4,25,000
A 2,12,500
B 2,12,500 2,00,000 x
6 x 5
Interest =
4,25,000 = 5,000
4,25,000
100 12 4,25,000
Particulars Dr. Amount Cr. Amount

4,25,000
Profit and loss App A/c
2,12,500
To A Capital A/c .
2,12,500
To B Capital A/c
Problem
A and B into partnership on 1st April 2009 without any partnership deed
they introduced capital of Rs 5,00,000 and Rs 3,00,000 respectively. On
31st Oct 2009, A advanced Rs 2, 00,000 by way of loan to the firm
without any agreement as to interest. The P/L A/C for the year ended
31st march 2010 showed a profit of Rs 4, 30,000 but the partners could
not agree upon the amount of interest on loan to be charged and the basis
of division of profits. Pass journal entry for the distribution of the
profits between the partners, capital account and loan account of A
To balance c/d 7,12,500 5,12,500 By Bank 500,000 3,00,000

By P/L App 2,12,500 2,12,500
7,12,500 5,12,500 7,12,500 5,12,500
A loan A/c
To balance c/d 2,05,000 By Bank 200,000

By interest on Loan 5,000
2,05,000 2,05,000
Problem
A and B are partners with the capital of Rs 5,00,000 and Rs 3,00,000
respectively. The profit of the year ended 31st march 2010 was Rs
3,46,000 before allowing interest on partners loan. Show the distribution
of profit after taking into the following considerations
1. Interest on A’s Loan of Rs 150,000 to the firm provided on 1st April

2009
2. Interest on capital to be allowed @ 5%.
3. Interest on drawings @ 6% p.a. drawing were Rs 60,000 and B Rs
40,000
4. B is to be allowed a commission of 2% on sales. Sales for the year
were Rs 30,00,000
5. 10% of the divisible profits is to be kept in a reserve account
Profit and loss A/c
To interest on A loan 9,000 By Net profit 3,46,000
3,46,000 3,46,000

Particulars Interest On partnersParticulars
Amount loan will be 6% Amount
By Net profit 3,37,000
1,50,000 x
6 x 12
A 25,000 Interest = = 9,000
B 15,000
40,000 100
By interest on drawings
12
To Commission to B 60,000 A 1,800
B 1,200
To General Reserves 24,000 3,000
A 1,08,000
B 1,08,000 2,16,000
3,40,000 3,40,000
Reserve fund will 10% of divisible profits
= 3,40,000 – 40,000 – 60000
= 2,40,000
x 10
Reserves = 2,40,000 = 24,000
100
Problem
X,Y,Z are partners with the fixed capital of Rs 1,50,000 Rs 1,20,000
and Rs 1,00,000 respectively. The balance of current accounts as on
1st January 2009 were X Rs 8,000 (Cr). Y Rs 3000 (Cr) and Z Rs
2,000 (Dr.)
X advanced Rs 20,000 on July 1st 2009. Partnership deed provides the

followings
1. Interest on capital at 5%.
2. Interest on drawing at 6% p.a. each partner drew Rs 10,000 on
July 1st 2009
3. Rs 20,000 is to be transferred to reserve account
4. Profit and loss to be shared in the proportion of 3:2:1. Upto Rs
60,000 and above Rs 60,000 equally.
Net profit of the firm for the year ended 31st December before above
adjustment was Rs 1,15,400.
Profit and loss A/c
To interest on X loan 6,00 By Net profit 115,400

To General Reserves By Net profit 114,800
Interest
20,000On partners loan will be 6%
X 7,500
By interest6 on drawings6
Y 6,000 Interest = 20,000 x x = 6,00
Z 5,000 X 100 300 12
18,500
Y 300
Z 300
900
1,15,700
By Balance 1,50,000 1,20,000 1,00,000

To Drawing 10,000 10,000 10,000 By Interest on cap 7,500 6,000 5,000
To interest Drawing 300 300 300
Profit and loss A/c

20,000
X 7,500
Y 6,000 By interest on drawings
Z 5,000 X 300
18,500
To profit transferred to Y 300
X 35,734 Z 300
Y 25,733 900
Z 15,733 77,200
1,15,700 1,15,700
Distribution of profits
Particulars A B C
First Rs 60,000 in capital ratio 30,000 20,000 10,000
3:2:1
Next Rs 17,200 equally 5734 5733 5733
Total (Divisible Profit 77,200 ) 35734 25733 15733

Profit and loss A/c

20,000
X 7,500
Y 6,000 By interest on drawings
Z 5,000 X 300
18,500
To profit transferred to Y 300
X 35,734 Z 300
Y 25,733 900
Z 15,733 77,200
1,15,700 1,15,700
To balance 1,50,000 1,20,000 1,00,000 By Balance 1,50,000 1,20,000 1,00,000
1,50,000 1,20,000 1,00,000 1,50,000 1,20,000 1,00,000
To Drawing 10,000 10,000 10,000 By Interest on cap 7,500 6,000 5,000
To interest Drawing 300 300 300 By P/L App 35,734 25,733 15,733
To balance c/d 40,934 24,433 8,433
51,234 34,733 20,733 51,234 34,733 20,733
Cases of interest on drawings
Drawings is the amount withdrawn in cash or in kind, for personal
purposes.
Drawings Account is opened in the name of each partner and the

drawings are debited to this account
Note:- Interest on partners’ drawings is charged only, if the

Partnership Deed specifically allows it at a particular rate.
Methods of calculating interest in
drawings
When equal/unequal
When equal amount is
withdrawn on equal interval
amount is withdrawn on
equal/unequal interval
Average Product Method Average Product Method
Product Method
Average Product Method
Average Period Rate

Interest = Drawings x x
12 100
Product Method
Interest = Total of Product x Rate x 1

100 12
Calculate interest on drawings
Date Amount
1st May 12,000
31st July 6,000
30th September 9,000
30th November 12,000
1st January 8,000
31st March 7,000
Interest on drawing is to be charged @ 9% p.a. calculate interest on
drawings
Solution Product Method

Date. Amount Period Interest @ 9%
February 1st 12,000 11 1,32,000
April 30th 6,000 8 48,000
June 30st 12,000 6 72,000
August 31st 12,000 4 48,000
October 1st 8,000 3 24,000
December 31st 7,000 0 0
Total 3,06,000
Interest = 3,06,000 x 9 % x 1 = 2,295

100 12
Date Amount
1st May 12,000
31 July
st
6,000
30 September
th
9,000
30th November 12,000
1st January 8,000
31st March 7,000
Interest on drawing is to be charged @ 9% p.a. Calculate interest on drawings
Solution Simple Method

Interest = 12,000 x 9 % x 11
= 990
100 12
Interest = 6,000 x 9 % x 8
= 360
100 12
Interest = 9,000 x 9 % x 6
= 405
100 12
Interest = 12,000 x 9 % x 4
= 360
100 12
Interest = 8,000 x 9 % x 3
= 180
100 12
Interest = 7,000 x 9 % x 0
= 0
100 12
Total = 2,295
When fixed amount is during the
year
Amount withdrawn during the year and the date

of drawing is not given
Amount withdrawn during the year and interest

is charged irrespective of period (word “p.a.” is
missing.
Calculate
1. A draw Rs 40,000 during the year and interest is charged on drawing
@ 10 p.a.
2. A draw Rs 40,000 during the year and interest is charged on drawing
@ 10
🖝 Note:- Interest on drawing will be charged for average period of 6

months in the date of drawing is not given
Interest = Drawings x Period x 10

12 100
= 40,000 x 6 x 10
12 100
= 2,000
Calculate
1. A Draw Rs 40,000 during the year and interest is charged on drawing
@ 10 p.a.
2. A Draw Rs 40,000 during the year and interest is charged on drawing
@ 10
🖝 Note:- Interest on drawing will be charged irrespective of period

because rate is given 10% not 10 p.a.
Interest = Drawings xx 10
100
= 40,000 xx 10
100
= 4,000
When fixed amount is withdrawn
every month
Fixed amount withdrawn at the beginning of every

month i.e. 1st Jan, 1st Feb, 1st March.....1
December
Fixed amount withdrawn at the end of the every

month i.e. 31st Jan, 28th Feb, 31st
March.....31st December
Fixed amount withdrawn at the middle of every

month. i.e. 15th Jan, 28th Feb, 15th
March.....15th December
Fixed amount withdrawn at the beginning of every month
If the fixed amount is withdrawn on the first day of every month, the
average period will be calculated with the help of following formula.
Average period = Time left after first drawing + Time left after last drawing
2
= 12 month + 1 Month
2
= 6.5 Months
Fixed amount withdrawn at the end of every month
If the fixed amount is withdrawn on the last day of every month, the
2
2
= 5.5 Months
Fixed amount withdrawn at the middle of every month
If the fixed amount is withdrawn on the middle day of every month, the
2
= 11.5 month + .5 Month
2
= 6 Months
Calculate
A, B and C are partners sharing in a firm.
1. A draw Rs 2,000 from the firm in the beginning of every month
2. B draws Rs 2,000 from the firm at the end of every month.
3. C draw Rs 2,000 from the firm in the middle of every month.
Interest in drawing is to be charged @ 15% p.a. calculate interest on

drawing partners drawings
2
= 6.5 Months
2
Interest = Drawings x Period x Rate

12 100
= 24,000 x 6.5 x 15
12 100
= 1,950
Calculate

2
= 5.5 Months
2

12 100
= 24,000 x 5.5 x 15
12 100
= 1,650
Calculate

2
= 11.5 month + .5 Month = 6 Months
2

12 100
= 24,000 x 6 x 15
12 100
= 1,800
When fixed amount is withdrawn
every quarter
Amount withdrawn at the Beginning of every

quarter. i.e. 1st April , 1 July, 1st October,1
Jan
Amount is withdrawn at the end of each

quarter. i.e. 30th June, 30th Sep, 31st
December, 31st March
Amount is withdrawn at the middle of each

quarter. i.e. 15th May, 15th Aug , 15th Nov, 15
Feb
Fixed amount withdrawn at the beginning of each quarter
If the fixed amount is withdrawn on the first day of each
quarter, the average period will be calculated with the help of
following formula.
2
2
= 7.5 Months
If the fixed amount is withdrawn on the last day of each quarter,
the average period will be calculated with the help of following
formula.
2
= 9 month + 0 Month
2
= 4.5 Months
If the fixed amount is withdrawn on middle of each quarter, the
average period will be calculated with the help of following
formula.
2
= 10.5 month + 1.5 Month
2
= 6 Months
Calculate
1. A draw Rs 8,000 from the firm in the beginning of each quarter
2. B draws Rs 8,000 from the firm at the end of each quarter
3. C draw Rs 8,000 from the firm in the middle of each quarter.

2
= 7.5 Months
2

12 100
= 32,000 x 7.5 x 10
12 100
= 2,000
Calculate

2
= 9 month + 0 Month
= 4.5 Months
2

12 100
= 32,000 x 4.5 x 10
12 100
= 1,200
Calculate

2
= 10.5 month + 1.5 Month = 6 Months
2

12 100
= 32,000 x 6 x 10
12 100
= 1,600
Summary
Sr. Cases Average
period
1 Amount withdrawn during the year and the date of drawing is
not given 6 Months
2 Amount withdrawn during the year and interest is charged

irrespective of period (word “p.a.” is missing. N.A
3 Fixed amount withdrawn at the beginning of every month i.e. 1st

April, 1st May, 1st March..... 6.5
Months
4 Fixed amount withdrawn at the end of the every month
i.e. 30st April,31st May ,31st March... . 5.5
Months
5 Fixed amount withdrawn at the middle of every month.
i.e. 15th April, 15th May, 15th June..15th Marcg 6 Months
6 Amount withdrawn at the beginning of every quarter. i.e. 1st

April , 1 July, 1st October, 1st January 7.5
Months
7 Amount withdrawn at the end of every quarter.
i.e. 3oth June , 30th September , 31st December, 31st March 4.5
Months
8 Amount is withdrawn at the middle of each quarter.
i.e. 15th May, 15th August, 15th Nov , 15th Feb. 6 Months
Ability Zone
Calculate
1. A draw Rs 6,000 in the beginning of every month for 6 month ending
30the September 2006
2. B draw Rs 8,000 in the beginning of every month for 9 month ending
3. B draw Rs 8,000 every month for 9 month ending 30the September
2006
Interest in drawing is to be charged @ 10% p.a. Calculate interest on
2
= 6 month + 1 Month
= 3.5 Months
2

12 100
= 36,000 x 3.5 10
12 x 100
= 1,050
Calculate
2006
2
= 9 month + 1 Month
= 5 Months
2

12 100
= 72,000 x 5 10
12 x 100
= 3,000
Calculate
2006
2
= 8.5 month + .5 Month
= 4.5 Months
2

12 100
= 72,000 x 4.5 10
12 x 100
= 2,700
Special Cases of
interest on
Capital
Case 1st
When the partnership agreement does not have a clause at to interest on
capital. (Interest on capital is not allowed)
Case 2nd
When the partnership agreement provides for interest on capital but is
silent to the interest on capital as a charge or appropriation
In case of loss Interest on capital will not be

allowed
If profit before interest is Full interest will he allowed

equal to or more than the
interest on capital
Interest will be restricted to the

If profit before interest
amount of profit. Profit will be divided
is less than the interest
in the ratio of interest on capital
on capital
Case 3rd
When the Full interest will he allowed whether there is

partnership profit or loss
agreement provides
for interest on
capital as a charge
Problem
the capital of 2,00,000 and 1,00,000 respectively. Show the distribution
of profits in each of the following cases
1. If partnership deed is silent as to the interest on capital 8% p.a. and
the profits of the year is Rs 50,000
2. If the partnership deed allowed interest on capital @ 8% p.a. and the
Loss for the year are Rs 50,000
profits for the year are Rs 50,000
profits for the year are Rs 15000
5. If the partnership deed allowed interest on capital @ 8% p.a. even if
it involves the firm in loss and the profits for the year are 15,000
By Net profit 50,000
A’s 3/5th 30,000
20,000 50,000
B’s 2/5th
🖝 :-Partnership deed is salient interest on capital will not be provided
50,000 50,000
Problem
5. If the partnership deed allowed interest on capital @ 8% p.a even if
it involves the firm in loss and the profits for the year are 15,000.
Profit and loss A/c

To Net Loss 50,000 By loss transferred to
A’s 3/5th 30,000

50,000
B’s 2/5th 20,000
50,000 50,000
Problem
5. If the partnership deed allowed interest on capital @ 8% p.a even if
A’s 16,000 24,000
B’s 8,000
A’s 3/5th 15,600
26,000
B’s 2/5th
10,400
50,000 50,000
Problem
profits for the year are Rs 15,000.
5. If the partnership deed allowed interest on capital @ 8% p.a. even if
A’s 10,000
B’s 5,000 15,000
🖝 :- Interest is restricted to the amount of profits in the ratio of interest

on capital ( 2:1)
15,000 15,000
Problem
5. If the partnership deed allowed interest on capital @ 8% p.a even if it
involves the firm in loss and the profits for the year are 15,000
Profit and loss A/c
By Net profit 15,000
A’s 16,000 By loss transferred to

24,000
B’s 8,000 A’s 3/5th 5,400
B’s 2/5th 3,600 9,000
24,000 24,000
Problem
the capital of 5,00,000 and 3,00,000 respectively. ilent as to the interest
on capital 8% p.a. and the profits of the year is Rs 50,000
Loss for the year are Rs 45000
Profit and loss A/c

A’s 16,000 By loss transferred to

24,000
B’s 8,000 A’s 3/5th 5,400
B’s 2/5th 3,600 9,000
24,000 24,000
Problem
Arun and Arora were partners in a firm sharing in the ratio of 5:3. Their
fixed capital o 1st April 2010. Were arun Rs 60,000 and arora Rs
80.000. they agreed to allow interest in capital @ 12% per annum and to
charge on drawing @ 15% per annum. The profits of the firm for the
year ended 31st march before all above adjustment were Rs 12,600. The
drawing made by arun were Rs 2,000 and arora Rs 4,000 during the year.
Prepare profit and loss appropriation account of arun and arora. The
interest on capital will be allowed even if the firm incurs a loss.
Profit and loss A/c
Arun current A/c 72,00 By Profit and los App 42,00
Arora current A/c 96,00 16,800
16,800 16,800
To profit and loss A/c 4,200 By interest on drawings
Arun current A/c 150

Arora current A/c 300 450
By Loss transferred to
Arun current A/c 2,344
Arora current A/c 1,406 3750
4,200 4,200
Problem
A and B shares profit and losses in the ratio of 2:1. A is a non working
partner and has contributed Rs 12, 00,000 as his capital. The partnership
deed provided for interest on capital @ 10% p.a. and salary of Rs 7,500
per month to B.The net profits for the year ended 31st March 2008
before providing for interest on capital and salary amounted to Rs 70,000.
You are required to show the effect of distribution of profits

To Interest On A’s Capital ( 4/7th of 70,000 40,000 By Net profit 70,000
To salary to B (3/7th of 70,000) 30,000
70,000 70,000
Available profit is = 70,000

Interest on A’s capital 12,00,000 x 10 1,20,000
=
100
Salary of B 7,500 X 12 = 90,000
Appropriations (salary + interest on capital) 2,10,000
Interest on capital : Salary

Profit will be distributed in the ratio : 90,000
of appropriations 12,00,000
4 : 3
Adjustment in the
closed accounts
Adjustment in the closed accounts
Sometimes, after the final accounts have been prepared and the
partners' capital account are closed, it is found that certain items have
been omitted by mistake or have been wrongly treated.
Such omissions and commissions usually relate to the
1. Interest on capital,
2. Interest on drawings,
3. Salary to partners,
4. Commission to partner
In such a situation, necessary adjustments have to be made in the

partners‘ capital
Income from Loss from
the partner’s the firm’s
point of view point of view
Interest on capital Interest on capital
Salary to partner Salary to partner
Commission to partner Commission to partner

Loss from the Income from
partner’s point the firm’s
of view point of view
Interest on Drawings Interest on Drawings

Various cases of interest on capital and interest on
drawings
When interest on capital is omitted
When interest on capital is provided and there is such no

such provision
When excessive interest on capital is provided
When less interest on capital is charged
When interest on drawing is omitted
When interest on capital is omitted and closing capital is

given
Problem Interest on capital is omitted
A, B, C, D are equal partners. Their capital on 1st April, 2010 was
Rs 50,000 Rs 30,000 Rs 25,000 and Rs 15,000 respectively. After
closing the accounts for the year ended 31st march 2011 it was
discovered that 10% interest on capital was not provided. Pass
necessary adjustment entry without opening the books.
Table Showing Adjustment

Particulars A B C D Total
Interest in capital (Cr.) 5,000 3,000 2,500 1,500 12,000
Division of Rs 12,000 3,000 3,000 3,000 3,000 12,000

loss (Dr.) in equal ratio
Difference Cr.2000 Dr. 500 Dr.1,500 -
Adjustment entry
C Capital A/cto the
Dr. 500
Expense firm
D Capital A/c Dr 15,00
To A Capital A/c 2,000
Adjustment entry regarding interest on capital

Problem Interest on capital is omitted and capital is fixed
A, B and C are partners in a firm. They have omitted interest on
capital @ 10 p.a. For the three year ended 31st march 2007. Their
fixed capital were
A Rs 1, 00,000 , B Rs 80,000, C Rs 70,000
Give the necessary adjustment entry

Particulars A B C Total
Interest in capital (Cr.) 30,000 24,000 21,000 75,000

For 3 years
Division of Rs 75,000 25,000 25,000 25,000 75,000
loss (Dr.) in equal ratio
Difference Cr.5000 Dr. 1000 Dr. 4000 -

B Current A/c 1,000
Expense to theDr.
firm
C Current A/c Dr 4,000
To A Current A/c 5,000

Problem Less interest on capital is charged
Ram , Shyam and Mohan are partners in firm sharing profits and losses
in the ratio of 2 :1:2. Their fixed capital were Rs 3, 00,000 Rs
1, 00,000 and Rs 2,00,000. Interest on capital for the year 1996 was
credited to them @ 9% p.a. instead of 10% p.a. the profit for the
year before charging interest was Rs 2,50,000. Prepare necessary
adjustment entry.

Particulars Ram Shyam Mohan Total
Interest in capital (Cr.) 3,000 1,000 2,000 6,000

Difference ( 10% - 9%)
Division of Rs 6000 24,00 1,200 24,00 6,000
loss (Dr.) in 2:1:2

Shyam Current A/c Dr. 200
Mohan Current A/c Dr 400
To Ram Current A/c 600

Problem Interest on capital is excessive charged
A, B and C are partners sharing profit and losses in the ratio of 2:3:5.
Their fixed capital was Rs 15, 00,000 Rs 30, 00,000 and Rs 60, 00,000.
Interest on capital was credited to them @ 12% p.a. instead of
10% p.a. Prepare adjustment entry.

Interest in capital (Dr.) 30,000 60,000 120,000 2,10,000

Difference ( 12% - 10%)
Division of Rs 2,10,000 42,000 63,000 1,05,000 2,10,000
Profit (Cr.) in 2:3:5
-
Difference Cr.12,000 Cr. 3000 Dr. 15,000
Particulars Dr Amount Cr. Amount

C Current A/c
Income Dr.
to the firm 15,000
To A’s Current A/c 12,000
To B’s Current A/c 3,000

Problem Interest on capital is allowed without any provision
A, B, C, partners. After the accounts of partnership have been drawn
up and the books closed off. It is discovered that for the year ended
31st march 2010 and 2011, interest has been allowed to the partners
upon their capital @ 6% p.a. although there is no provision in the
partnership deed. Their fixed capital was Rs 1,00,000 Rs 80,000 and
Rs 60,000 respectively. During the year there p/l ratio was follows
2010 3:2:1.
2011 5:3:2
Pass necessary journal entry on 1st April 2011.
Interest in capital (Dr.) 6,000 48,00 3,600 14,400
Total amount receivable (Dr. 12,000 96,00 72,00 28,800
Profit for the First year.(Cr) 3:2:1 72,00 48,00 2,400 14,400
Profit for the 2nd year .(Cr) 5:3:2 72,00 4320 2,880 14,400
Total Profit payable (Cr. 14,400 9120 5280 28,800
Difference Cr.2400 Dr. 480 Dr. 1920
-
Total amount receivable (Dr. 12,000 96,00 72,00 28,800
Profit for the First year.(Cr) 3:2:1 72,00 48,00 2,400 14,400
Profit for the 2nd year .(Cr) 5:3:2 72,00 4320 2,880 14,400
Total Profit payable (Cr. 14,400 9120 5280 28,800
Difference Cr.2400 Dr. 480 Dr. 1920
-

B’s Current A/c Dr. 480
1920
C’s Current A/c Dr
To A’s Current A/c 2400
Problem Interest on drawing is omitted
X, Y and Z are partners sharing profit and losses in the ratio of 3:2:1.
After the final accounts have been it was discovered that interest on
drawing had not been taken into consideration. The interest on drawings
of the partners were X Rs 250 Y Rs 180 and Z Rs 100. Give the
necessary adjustment journal entry.

Particulars X Y Z Total
Interest in Drawings (Dr.) 250 180 100 530
Division of Rs 530 in 3:2:1. (Cr.) 265 177 88 530

Y Capital Dr. 3
Z Capital A/c Dr 12
To X Capital A/c 15
Problem When closing capital is given and interest is omitted
On 31st December 2011 the capital accounts of Elvin, Monu and Ahmed
was Rs 80,000, 60,000 and Rs 40,000 respectively. It was discovered
that interest on capital and interest on drawing has been omitted, the
partners were entitled to interest on capital @ 5% p.a. the drawings
during the year were Elvin Rs 20,000, Monu Rs 15,000 and Ahmed Rs
9,000. Interest in drawing chargeable to the partner Elvin Rs 500, Monu
Rs 360 and Ahmed Rs 200. The net profit during the year amounted to Rs
1, 20,000. The profit sharing ratios of the partners were 3:2:1. Record
the necessary adjustment entry to rectifying the above errors of
omissions entry.

Particulars Elvin Monu Ahmed
Closing capital ( 31-12-2001 80,000 60,000 40,000
added in the ratio of 3:2:1) 60,000 40,000 20,000
Add Drawing during year 20,000 15,000 9,000

Opening capital ( 1-1- 2001 40,000 35,000 29,000
Particulars Elvin Monu Ahmed
Opening capital ( 1-1- 2001 40,000 35,000 29,000

Particulars Elvin Monu Ahmed Total
Interest on Capital 2,000 1,750 1,450 5,200
Less:- interest on drawing -500 -360 -200 -1060
Total amount payable (Cr.) 1,500 1,390 1,250 4,140
Division of loss (3:2:1) 2,070 1,380 690 4,140
Dr. 570 Cr.10 Cr.560 -

Difference

Elvin Capital A/c Dr. 570
To Monu’s Capital A/c 10
To Ahmed’s Capital A/c 560
Adjustment entry regarding omissions.
Problem When closing capital is given and interest is omitted
A and B are partner sharing profits and losses in the ratio of 3:2. the following
is the balance sheet of the firm as on 31st march 2010
Liabilities Amount Assets Amount

A’s Capital 60,000 Sundry assets 80,000
B’s Capital 20,000
80,000 80,000
The profits Rs 30,000 for the year ended 31st march 2010 were divided between
the partners without allowing interest on capital 12% p.a and salary to A @ 1000
per month. During the year A withdrew Rs 10,000 and B withdrew Rs 20,000.
Pass necessary journal adjustment entry and show your working clearly

Particulars A B
Closing capital ( 31-3-2010 60,000 20,000

Opening capital ( 1-4- 2009 52,000 28,000
Particulars A B
Opening capital ( 1-4- 2009 52,000 28,000

Particulars A B Total
Interest on Capital 6240 3,360 9,600
Salary to A 12,000 12,000
Total amount payable 18,240 3,360 21,600
Division of loss (3:2) 12,960 8,640
Cr 5,280 Dr 5,280
Difference

B’s Capital A/c Dr. 5,280
To A’s Capital A/c 5,280

Problem Comprehensive( salary, interest on capital)
A ,B and C are partners sharing ratio in the ratio of 5:4:3. Their capital on 1st
April 2010 was Rs 50,000, Rs 40,000 and Rs 20,000.
After closing the account for the year ended 31st march 2011 it was found out
that according to the partnership agreement interest at 10% p.A. On partner’s
capital, Salary of Rs 6,000 per year to B and a salary Rs 7,000 per year to C
was not provided before distribution of profit.
It was agreed among the partners to made adjustment entry at the beginning of
the next for rather than to alter the balance sheet. Pass the necessary entry
assuming that the capitals are not fixed.

Salary
6000 7000 13,000
Total amount payable 5,000 10,000 9,000 24,000
Division of loss (5:4:3 10,000 8,000 6,000 24,000
Dr. 5000 Cr.2000 Cr.3000 -

Difference
Salary
6000 7000 13,000
Total amount payable 5,000 10,000 9,000 24,000
Division of loss (5:4:3 10,000 8,000 6,000 24,000
Dr. 5000 Cr.2000 Cr.3000 -

Difference

A’s Capital A/c Dr. Dr. 5000
To B’s Capital A/c 2000
To C’s Capital A/c 3000

When profit is divided in
wrong ratio and certain items
are unrecorded.
Problem When profit sharing ratio is changed
X ,Y and Z have been sharing profits in the ratio of 2:2:1 respectively. Z
wants that he should given equal share in profits with X and Y and he
further wants that the change in the profits sharing ratio should come
into effect retrospectively for the last three years X and Y have no
objection to this. The profit for last 3 years were Rs 52,000, Rs 44,200
and 51,610. Pass necessary adjustment entry without opening the books.
Particulars X Y Z Total
Total profits of the 3 years 59,124 59,124 29,562 1,47,810
distributed in 2:2:1 (Dr)
Now division of profits in 49270 49270 49270 1,47,810

equal ratio
Difference Dr. 9854 Dr. 9854 Cr.19,704 -

X’s Capital A/c Dr. 9854
Y’s Capital A/c 9854
To Z’s Capital A/c 19,704

Problem When profit sharing ratio is changed and items are omitted
Ravi and Mohan were partners in a firm sharing profit in the ratio of 7:5.
Their respective fixed capital were Rs 10, 00,000 and Mohan
Rs 7, 00,000.The partnership deed provides
Interest on capital @ 12 p.a.
Ravi salary Rs 6000 per month ,Mohan salary Rs 60,000 per year
The profit for year ended 31st march 2007 was Rs 5, 04,000 which were
distributed equally without providing for the above. Pass necessary
adjustment entry without opening the books.

Particulars Ravi Mohan Total
Interest on Capital (Cr.) 1,20,000 84,000 2,04,000
Salary to partners 72,000 60,000 1,32,000
Division of remaining profits

( 5,04,000 – 2,04,000- 98,000 70,000 1,68,000
1,32000 = 1,68,000
Net amount which should 2,90,000 2,14,000 5,04,000

have been received (Cr.)
= 5,04,000 – (2,04,000 + 1,32,000

Less:- Wrongly 2,52,000 2,52,000 5,04,000
Distributed Equally (Dr.)
= 1,68,000 ( 7: 5)
Difference Cr.38,000 Dr. 38,000
Particulars Ravi Mohan Total
Interest on Capital (Cr.) 1,20,000 84,000 2,04,000
Salary to partners 72,000 60,000 1,32,000
Division of remaining profits

( 5,04,000 – 2,04,000- 98,000 70,000 1,68,000
1,32000 = 1,68,000
Net amount which should 2,90,000 2,14,000 5,04,000

Less:- wrongly distributed 2,52,000 2,52,000 5,04,000

equally (Dr.)
Difference Cr.38,000 Dr. 38,000 -

38,000
Mohan’s Current A/c Dr.
38,000
To Ravi Current A/c

Problem
P, Q, and R are partners in a firm. Their capital accounts stood at Rs
30,000 Rs 15,000 and Rs 15,000 respectively on 1st January 1,996
As per the provisions on the deed
1. R was to allow a salary of Rs 3,000 p.a.
2. Interest at 5% p.a. was to be provided on capital
3. Profits was to divided in the ratio of 2:2:1
Ignoring the above terms net profits of Rs 18,000 for the year ended
1996 was divided among the three partners equally. Pass necessary
adjustment entry without opening the books.
Particulars P Q R Total
Remuneration to R (Cr.) 3,000 3,000
Interest on Capital (Cr.)

1,500 750 750 3,000
Division of remaining
profits ( 18,000 – 6000) 4,800 4,800 2,400 12,000
Net amount which should 6,300 5,550 6,150 18,000

= 18,000 – (3,000 + 3,000)
Less:- wrongly distributed 6,000 6,000 6,000 18,000
equally (Dr.) = 12,000 ( 2:2:1)
Difference Cr.300 Dr. 450 Cr.150 -
Particulars P Q R Total
Remuneration to R (Cr.) 3,000 3,000
Interest on Capital (Cr.)

1,500 750 750 3,000
profits ( 18,000 – 6000) 4,800 4,800 2,400 12,000


equally (Dr.)
Difference Cr.300 Dr. 450 Cr.150 -

Q Capital A/c Dr. 450
To P’s Capital A/c 300
To R’s Capital A/c 150

Problem
A, B, and C are partners in a firm. Their capital accounts stood
at Rs 30,000 Rs 20,000 and Rs 10,000 respectively. As per
the provisions on the deed
1. Interest at 5% p.a. was to be provided on capital
2. B was entitled a salary of Rs 500 per month.
3. C was to allow a commission of 5% on the profits after
charging interest on capital but before charging salary
payable to B.
4. Profits was to divided in the ratio of 2:2:1.
Ignoring the above terms net profits of Rs 30,000 for the year
ended divided among the three partners in the capital ratio.
Interest on Capital (Cr.) 1,500 1,000 500 3,000
Commission to C 1,350 1,350
Salary to B ( 500 X 12) 6,000 6,000
profits ( 30,000 – 10350 7,860 7,860 3,930 19,650
( 2:2:1)
Less:- wrongly distributed = 30,000

15,000– (3,000 + 1350
10,000 + 6000) 30,000
5,000
3:2:1 (Dr.)
Difference = 19,650 ( 2:2:1)
Dr.5640 Cr. 4860 Cr.780 -

A’s Capital A/c Dr. 5,640
To B’s Capital A/c 4860
To C’s Capital A/c 780

Problem
The partners of a firm distributed the profits for the year
ended 31st March 2003 Rs 90,000 in the ratio of 3:2:1
without providing for the following adjustment
1. A and B were entitled to a salary of Rs 1500 per annum
2. B was entitled to a commission of Rs 45,00
3. B and C had guaranteed a minimum profits of Rs 35,000
p.a. to A
4. Profits were to be shared in the ratio of 3:3:2.
Pass necessary journal entry for the above adjustment without
opening the books of the firm.
Salary to partner A and B 1,500 1,500 3,000
Commission to B 4,500 4,500
Profit guaranteed to A 35,000 35,000
Remaining profits of A after allowing salary and commission
90,000 – 3000 – 4500 = 82,500
x 3 = 30938
A share = 82,500
8
Less than guaranteed amount of Rs 35000
Remaining profit of B and C 28,500 19,000 47,500
Net credit (Cr.) 36,500 34,500 19,000 90,000

3:2:1 (Dr.)
Difference Dr.8500 Cr. 4500 Cr.4000 -
Remaining profits of B and C
90,000 – 3000 – 4500 - 35000 = 47,500
x 3 = 28500
B share = 47,500
5
x 2 = 19,000
C share = 47,500
5
Net credit (Cr.) 36,500 34,500 19,000 90,000

3:2:1 (Dr.)

To B’s Capital A/c 4,500
To C’s Capital A/c 4,000

Guarantee of
minimum profit to
partner
Guarantee of Profit to a Partner
Guarantee is an assurance that a partner will not get as his
share of profit less than the guaranteed amount. There may be
two situations :
•Guarantee to one partner by (others) by the firm,

•Guarantee to a partner by another partner individually.
Problem •Guarantee to one partner by (others) the firm,
Ram raj and George are partners sharing profits and losses in the ratio
of 5:3:2. According to the partnership agreement George is to get a
minimum amount of Rs 10,000 as his share of profits every year. The
net profit for the year ended 31st march 2011 amounted to Rs 40,000
x 5 = 20,000
Ram share = 40,000
10
x 3 = 15,000
Raj share = 40,000
10
x 2 = 8,000
George share = 40,000
10
Minimum guarantee = 10,000

Less divisible profit = 8,000
Deficiency = 2,000
Ram raj and George are partners sharing profits and losses in
the ratio of 5:3:2. According to the partnership agreement
George is to get a minimum amount of Rs 10,000 as his share
of profits every year. The net profit for the year ended 31st
march 2011 amounted to Rs 40,000
Deficiency of Rs 2000 will be bear by ram and raj in their profit sharing
ratio i.e. 5:3
x 5 = 1,250
Ram share = 2,000
8
x 3 = 750
Raj share = 2000
8
To Profit transferred to capital A/c By Net profit 40,000
Ram ( 20,000 – 1250) 18,750

Raj ( 12,000 – 750) 11,250
George ( 8,000 + 1250 + 750) 10,000
40,000 40,000
Problem
Anil Sunil and Ravinder entered into a partnership on 1st January 2011
to share profits in the ratio of 2:1:1. It was provided in the deed
that Ravinder share of profits will not be less than Rs 70,000 per
annum. The losses for the year ended 31st December 2011 were Rs
2,00,000 before allowing interest Rs 8000 on Anil loan is due for the
current year.
Profit and loss A/c
To Net loss 2,00,000 By Loss transferred to 2,08,000
P/L App
To interest on Anil loan 8,000

To Profit & loss A/c (loss) 2,08,000 By loss transferred
To Ravinder’s capital A/c Anil’s Capital
70,000
(Minimum guaranteed profits) 2,78,000 x 2 1,85,333
3
Sunil’s Capital
2,78,000 x 1 92,667
2,78,000
3 2,78,000
Problem
A,B and C are partner sharing profits and losses in the ratio
of 5:4:1. C is given a guarantee that his share of profits in
any given year would be Rs 5,000. Deficiency if any would be
borne by A and B equally. The profits for the year ended 31st
march 2011 amounted to Rs 40,000. Pass necessary entries in
the books of the firm
When manager is
treated as a partner
Guarantee of Profit to a Partner
Guarantee is an assurance that a partner will not get as his
share of profit less than the guaranteed amount. There may be
two situations :
•Guarantee to one partner by (others) by the firm,

•Guarantee to a partner by another partner individually.
Ram raj and George are partners sharing profits and losses in the ratio
of 5:3:2. According to the partnership agreement George is to get a
minimum amount of Rs 10,000 as his share of profits every year. The
net profit for the year ended 31st march 2011 amounted to Rs 40,000
x 5 = 20,000
Ram share = 40,000
10
x 3 = 15,000
Raj share = 40,000
10
x 2 = 8,000
George share = 40,000
10

Deficiency = 2,000
Ram raj and George are partners sharing profits and losses in
the ratio of 5:3:2. According to the partnership agreement
George is to get a minimum amount of Rs 10,000 as his share
of profits every year. The net profit for the year ended 31st
march 2011 amounted to Rs 40,000
Deficiency of Rs 2000 will be bear by ram and raj in their profit sharing
ratio i.e. 5:3
x 5 = 1,250
Ram share = 2,000
8
x 3 = 750
Raj share = 2000
8
Ram ( 20,000 – 1250) 18,750

Raj ( 12,000 – 750) 11,250
George ( 8,000 + 1250 + 750) 10,000
40,000 40,000
Problem
Anil Sunil and Ravinder entered into a partnership on 1st January 2011
to share profits in the ratio of 2:1:1. It was provided in the deed
that Ravinder share of profits will not be less than Rs 70,000 per
annum. The losses for the year ended 31st December 2011 were Rs
2,00,000 before allowing interest Rs 8000 on Anil loan is due for the
current year.
Profit and loss A/c
To Net loss 2,00,000 By Loss transferred to 2,08,000
P/L App
To interest on Anil loan 8,000

To Profit & loss A/c (loss) 2,08,000 By loss transferred
To Ravinder’s capital A/c Anil’s Capital
70,000
(Minimum guaranteed profits) 2,78,000 x 2 1,85,333
3
Sunil’s Capital
2,78,000 x 1 92,667
2,78,000
3 2,78,000
Problem •Guarantee to one partner by others partners in equal ratio
A,B and C are partner sharing profits and losses in the ratio of 5:4:1.
C is given a guarantee that his share of profits in any given year
would be Rs 5,000. Deficiency if any would be borne by A and B
equally. The profits for the year ended 31st march 2011 amounted to
Rs 40,000. Pass necessary entries in the books of the firm
x 5 = 20,000
A’s share = 40,000
10
x 4 = 16,000
B’s share = 40,000
10
x 1 = 4,000
C’s share = 40,000
10

Deficiency = 1,000
Problem •Guarantee to one partner by others partners in equal ratio
A,B and C are partner sharing profits and losses in the ratio of 5:4:1.
C is given a guarantee that his share of profits in any given year
would be Rs 5,000. Deficiency if any would be borne by A and B
equally. The profits for the year ended 31st march 2011 amounted to
Rs 40,000. Pass necessary entries in the books of the firm
Deficiency of Rs 1000 will be bear by A and B in their profit sharing

ratio i.e. 1:1
x 1 = 500
A’s share = 1,000
2
x 1 = 500
B’s share = 1000
2
A’s ( 20,000 – 500) 19,500

B’s ( 16,000 – 500) 15,500
C’s ( 4,000 + 500 + 500) 1,000
40,000 40,000
When manager is
treated as a partner
Problem
A and B are in a partnership sharing profits and losses in ratio of 3:2.
They decided to admit C their manager as a partner with effect from
1st April, 2010 giving 1/4th share of profits.
C while a manager was in receipt of salary of Rs 27,000 per annum and a

commission of 10% of the net profit after charging such salary and
commission.
In terms of the partnership deed any excess which C will be entitled to

received as a partner over manager would be personally borne by A out of
his share of profit. Profit for the year ended 31st march 2011 amounted
to Rs 225,000 before payment of salary and commission
Distribution of profits before the admission of C as a partner
Profit before manager’s Salary before Commission = 2,25,000
Less:- Manager Salary = -27,000
Profit after manager’s Salary before Commission = 1,98,000
10 X 1,98,000 -18,000
Less:- Manager commission =
110
Profit after manager’s Salary after Commission = 1,80,000

Net divisible profits
x 3 = 1,08,000
A share = 1,80,000
5
x 2 = 72,000
B share = 1,80,000
5
Since C has joined as a partner he is not entitled to get salary and
commission (45,000)
He will get 1/4th share in the total profits of Rs 2,2,5000
2,25,000 x 1
C share as a partner =
4
= 56,250
C share as a manager = 45,000

Difference of Rs 11,250 will
Excess of C’s share as = 11,250 be borne by A
a partner

To Profit transferred to capital A/c By Net profit 2,2,5,000
A’s 1,80,000 x 3 = 1.08,000
5
96,750
Less:- Due to C = -11,250
To B’s 1,80,000 x 2
72,000
5
56,250
To C’s 2,2,5,000 x 1
4
2,2,5,000 2,2,5,000
Problem
A B and C are in partnership A and b sharing profit and losses in the
ratio of 3:1.
C receiving an annual salary of Rs 32,000 plus 5% of the net profits

after charging his salary and commission or 1/4th of the firm profit
which ever is more.
Any excess of the later over former received by C to be borne by A

and B in the ratio of 3:2.
The profit for the year ended 31st march 2011 is Rs 168000 after
charging C salary.
Distribution of profits before the admission of C as a partner
Profit before manager’s Salary before Commission = 2,00,000
Less:- Manager Salary = -32,000
Profit after manager’s Salary before Commission = 1,68,000
5 X 1,68,000 -8,000
Less:- Manager commission =
105
Profit after manager’s Salary after Commission = 1,60,000
Net divisible profits
x 3 = 1,20,000
A share = 1,60,000
4
x 1 = 40,000
B share = 1,60,000
4
Since C has joined as a partner he is not entitled to get salary and
commission (40,000)
He will get 1/4th share in the total profits of Rs 2,00,000
2,00,000 x 1
C share as a partner =
4
= 50,000
C share as a manager = 40,000

Difference of Rs 10,000 will
Excess of C’s share as = 10,000 be borne by A and B in 3:2
a partner
To Profit transferred to capital A/c By Net profit 2,00,000
A’s 1,60,000 x 3 = 1,20,000
4
Less:- Due to C -6,000 1,14,000
To B’s 1,60,000 x 1 40,000

4 36,000
Less:- Due to C -4,000
To C’s 2,00,000 x 1 50,000

4
2,00,000 2,00,000
Problem
Kothari and Pradeep are partner sharing profits and losses in the ratio of 3:2.
They employed Chandan as their manager to whom they paid a salary of Rs 750
per month. Chandan deposited Rs 20,000 on which interest was payable @ 9%
p.a.
At the end of 2001 ( after division of years profit) it was decided that
Chandan should be treated as partner with effect from 1st January 1998 with
1/6th share in profits this deposits being considered as capital carrying interest
%6 per annum.
Like capital of other partners their firm’s profit and losses after allowing interest
on capital were as follows
Year Profit/loss Amount

1998 Profit 59,000
1999 Profit 62,000
2000 Loss 4,000
2001 Profit 78,000
Record the necessary journal entries to give the effect to the above.
Total amount paid to Chandan as a manager
Particulars Amount
•Interest on his loan Rs 20,000 @ 9% p.a. (last 4 years) 7200

•Salary for the past 4 years 36000
Total Amount 43,200
Total amount paid to Chandan as a partner
Particulars Amount
•Profit for the year 1998 59,000
•Loss for the year 2000 -4000
Add:- total amount paid to Chandra as a manager 43,200
Total profit of the firm 2,38200

Less:-Interest on Capital Rs 20,000 @ 6% p.a. (last 4 years) 48,00
Net profit of the firm 2,33400
1
Chandan share in profits = 2,33400 x = 38,900
6
Add:- 6% interest on capital 20,000 ( 4 years) = 48,00
43,700
As a partner Share of Chandan = 43.700
As a manager Share of Chandan = 43,200
Deficiency = 500
This deficiency will be borne by Pardeep and Kothari in the ratio of 3:2
Journal Entry
Particulars Dr Amount Cr Amount
Chandan’s Loan Dr. 20,000
To Chandan’s Capital A/c 20,0000
Kothari’s Capital A/c Dr. 300

Pradeep’s Capital A/c 200
To Chandan’s Capital A/c 500
Net credit (Cr.) 36,500 34,500 19,000 90,000

3:2:1 (Dr.)

To B’s Capital A/c 4,500
To C’s Capital A/c 4,000

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Fundamentals of

Partnership : features, partnership deed. Provisions of the

Indian partnership act 1932 in the absence of partnership

Fixed v/s fluctuating capital accounts, division of profit among

partners, interest n drawing, salary and profit sharing ratio),

preparation partners, Past adjustments (relating to interest

on capital, of P&L appropriation account, guarantee of

minimum profits to Partner

Growth of the business

To earn the maximum profits

Quick decision making

Work is directly related to the profits

Less Chances Of Growth And Expansion Lack Of Capital

Lack Of Managerial Skills Lack Of Continuity

“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”.

Mutual and implied agency is the essence of partnership.

Regarding the maximum number of persons,

it is limited to 10 in banking business

The relationship among the partners is established by an

Such agreement forms the basis of their mutual

The agreement between the partners must

be to share the profits or losses of the business.

This agreement contains all the terms and conditions

Rights, duties and liabilities of all partners are stated in

• Names and addresses of all partners

• Date of commencement of partnership

• Amount of capital contributed or to be contributed by each

• Rules regarding operation of bank accounts

• Ratio in which profits are to be shared

• Interest, if any, on partners' capital and drawings;

• Interest on loan by the partners(s) to the firm

• Salaries, commissions, etc. if payable to any partner(s)

• Settlement of accounts on dissolution of the firm

Interest on partner’s Capital

If as per the partnership deed, interest is allowed, it will

Salary/ Commission to partner

Profit sharing ratio

X and Y are partners in a firm. They do not have any partnership

1. X spends twice the time that Y devotes to business. X claims

X and Y are partners in a firm. They do not have any partnership

1. X spends twice the time that Y devotes to business. X claims

2. Interest on capital is not payable to any partner. X and Y will

X and Y are partners in a firm. They do not have any partnership

1. X spends twice the time that Y devotes to business. X claims

3. A person cannot be introduced as partner without the consent

X and Y are partners in a firm. They do not have any partnership

1. X spends twice the time that Y devotes to business. X claims

4. Profit will be shared equally between X and Y after deducting

Gross profit/gross loss

Profit and loss account

Net profit/net loss

Particulars Amount Particulars Amount

To Gross Profit 2,00,000

To Indirect Exp 70,000 By Gross Profit 2,00,000

To Net Profit 1,80,000 By indirect Income 50,000