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Question
Rakhi and Shikha are partners in a firm, with capitals of Rs 2,00,000 and Rs 3,00,000 respectively. The profit of the firm, for the year ended 2016-17 is Rs 23,200. As per the Partnership agreement, they share the profit in their capital ratio, after allowing a salary of Rs 5,000 per month to Shikha and interest on Partner’s capital at the rate of 10% p.a. During the year Rakhi withdrew Rs 7,000 and Shikha Rs 10,000 for their personal use. You are required to prepare Profit and Loss Appropriation Account and Partner’s Capital Accounts.
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Solution
If interest on capital and Partners’ salaries will be provided even if firm involves in loss.
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Profit and Loss Appropriation Account |
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Dr. |
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Cr. |
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Particulars |
Amount Rs |
Particulars |
Amount Rs |
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Partner’s Salaries : |
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Profit and Loss |
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23,200 |
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Shikha |
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60,000 |
Loss transferred to : |
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Rakhi Capital |
34,720 |
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Interest on Capital : |
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Shikha’s Capital |
52,080 |
86,800 |
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Rakhi |
20,000 |
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Shikha |
30,000 |
50,000 |
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1,10,000 |
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1,10,000 |
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Partners’ Capital Account |
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Dr. |
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Cr. |
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Particulars |
Rakhi |
Shikha |
Particulars |
Rakhi |
Shikha |
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Drawings |
7,000 |
10,000 |
Balance b/d |
2,00,000 |
3,00,000 |
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Profit & Loss Appropriation |
34,720 |
52,080 |
Partner’s Salaries |
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60,000 |
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Balance c/d |
1,78,280 |
3,27,920 |
Interest on Capital |
20,000 |
30,000 |
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2,20,000 |
3,90,000 |
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2,20,000 |
3,90,000 |
If interest on capital and salaries will be provided out of profit
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Profit and Loss Appropriation Account |
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Dr. |
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Cr. |
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Particulars |
Amount (Rs.) |
Particulars |
Amount (Rs.) |
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Partner’s Salaries |
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Profit and Loss |
23,200 |
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Shikha {23,200 × (6/11)} |
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12,655 |
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Interest on Capital |
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Rakhi {23,200 × (2/11)} |
4,218 |
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Shikha {23,200 × (3/11)} |
6,327 |
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23,200 |
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23,200 |
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If profit is less than the sum of distributable items, distribution shall be in proportion of items for distribution.
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Partners Salaries |
Ratio |
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Shikhar (Rs 60,000) |
6 |
23,200 × (6/11) |
12,655 |
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Interest on Capital |
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Rakhi (Rs 20,000) |
2 |
23,200 × (2/11) |
4,218 |
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Shikhar (Rs 30,000) |
3 |
23,200 × (3/11) |
6,327 |
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11 |
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23,200 |
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Partners’ Capital Account |
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Dr. |
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Cr. |
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Particulars |
Rakhi |
Shikha |
Particulars |
Rakhi |
Shikha |
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Drawings |
7,000 |
10,000 |
Balance b/d |
2,00,000 |
3,00,000 |
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Partner’s Salaries |
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12,655 |
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Balance c/d |
1,97,218 |
3,08,972 |
Interest on Capital |
4,218 |
6,327 |
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2,04,218 |
3,18,972 |
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2,04,218 |
3,18,972 |
APPEARS IN
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|
|
Sukesh (Rs) |
Verma* (Rs) |
|
Capital Accounts |
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|
Current Accounts |
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|
Drawings |
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|
|
Rs |
|
February 01 |
4,000 |
|
May 01 |
10,000 |
|
June 30 |
4,000 |
|
October 31 |
12,000 |
|
December 31 |
4,000 |
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Calculate the amount of interest to be charged on Harish’s drawings for the year ending December 31, 2017.
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|
Rakesh |
Month |
Rs. |
|
|
May 31, 2019 |
600 |
|
|
June 30, 2019 |
500 |
|
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August 31, 2019 |
1,000 |
|
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November 1, 2019 |
400 |
|
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December 31, 2019 |
1,500 |
|
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January 31, 2020 |
300 |
|
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March 01, 2020 |
700 |
|
Rohan |
At the beginning of each month |
400 |
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The following balances are extracted from the books of the firm on March 31, 2017.
|
Sukesh |
Verma |
|
| Capital Accounts |
40,000 |
40,000 |
| Current Accounts (Cr.) | 7,200 | 2,800 |
| Drawings (Cr.) | 10,850 | 8,150 |
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Following is the extract of the Balance Sheet of, Neelkant and Mahdev as on March 31, 2017:
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Balance Sheet as at March 31, 2017 |
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Amount |
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Amount |
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Liabilities |
Rs |
Assets |
Rs |
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Neelkant’s Capital |
10,00,000 |
Sundry Assets |
30,00,000 |
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Mahadev’s Capital |
10,00,000 |
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Neelkant’s Current Account |
1,00,000 |
|
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Mahadev’s Current Account |
1,00,000 |
|
|
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Profit and Loss Apprpriation |
|
|
|
|
(March 2017) |
8,00,000 |
|
|
|
|
30,00,000 |
|
30,00,000 |
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|
Rakesh |
Month |
Rs |
|
|
May 31, 2016 |
600 |
|
|
June 30, 2016 |
500 |
|
|
August 31, 2016 |
1,000 |
|
|
November 1, 2016 |
400 |
|
|
December 31, 2016 |
1,500 |
|
|
January 31, 2017 |
300 |
|
|
March 01, 2017 |
700 |
|
Rohan |
At the beginning of each month |
400 |
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How you will calculate the average period and the interest on drawings when the amount is withdrawn in the middle of each month?
Mohan and Sham are partners in a firm. State whether the claim is valid if the partnership agreement is silent in the following matters:
"Shyam wants interest on capital to be credited @6% per annum".
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Pick the odd one out:
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| 1. | Gain on sale of fixed tangible assets | 12,50,000 |
| 2. | Goodwill written off | 7,80,000 |
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| Particulars | 31.3.2020 (₹) | 31.3.2019 (₹) |
| Prepaid Expenses | 7,50,000 | 5,00,000 |
| Inventory | 10,50,000 | 8,20,000 |
| Trade Payable | 4,50,000 | 3,50,000 |
| Trade Receivables | 6,20,000 | 5,90,000 |
Operating profit before working capital changes will be ₹ ______.
The Journal Entry to transfer interest on capital to Profit and Loss Appropriation Account would be:
Pick the odd one out:
If the interest on capital is omitted, what will be the journal entry during the situation?
|
Rudra, Dev and Shiv were partners in a firm sharing profits in the ratio of 5 : 3 : 2. Their fixed capitals were ₹ 6,00,000, ₹ 4,00,000 and ₹ 2,00,000 respectively. Besides his capital Shiv had given a loan of ₹ 75,000 to the firm. Their partnership deed provided for the following:
During the year Rudra withdrew ₹ 50,000 at the end of each quarter; Dev withdrew ₹ 50,000 in the beginning of each half year and Shiv withdrew ₹ 70,000 at the end of each half year. The profit of the firm for the year ended 31-3-2022 before allowing interest on Shiv's loan was ₹ 7,06,750. |
What will the amount of interest on drawings of the partners?
Richa and Anmol are partners sharing profits in the ratio of 3 : 2 with capitals of ₹ 2,50,000 and ₹ 1,50,000 respectively. Interest on capital is agreed @6% p.a. Anmol is to be allowed an annual salary of ₹ 12,500. During the year ended 31st March 2023, the profits of the year prior to calculation of interest on capital but after charging Anmol’s salary amounted to ₹ 62,000. A provision of 5% of this profit is to be made in respect of manager’s commission.
Following is their Profit & Loss Appropriation Account.
| Particulars | (₹) | Particulars | (₹) |
| To Interest on Capital | By Profit & loss account (After manager’s commission) | ___(2)___ | |
| Richa | ______ | ||
| Anmol | ______ | ||
| To Anmol’s Salary a/c | 12,500 | ||
| To Profit transferred to: | |||
| Richa’s Capital A/C (1) | ___(1)___ | ||
| Anmol’s Capital A/c | ______ | ||
| ______ | ______ |
The amount to be reflected in blank (2) will be:
