1. ACCOUNTING FOR PARTNERSHIP FIRMS
Ø IMPORTANT MODELS/QUESTION ESPECIALLY FOR SLOW LEARNERS/LOW ACHIEVEERS IN ORDER OF PRIORITY:
This chapter is important for slow learners. It requires only understanding of basic concepts only that this chapter carries maxmimum marks of 35 out of 80
Ø The provisions of Indian Partnership Act, 1932 which are applicable in the absence of Partnersship Deed.
Ø Max. no. of partners increased to 50
Ø Past adjustments – writing an adjustment entry involving interest on capital, interest on drawings, change in profit sharing ratio.
Ø Preparation of Profit and Loss Appropriation a/c.
Ø Attempting Value base questions .
Ø In Admission of a Partner two important models i) Adjustment of old partners’ capitals and ii) Calculation of new partner’s capital with the help of new ratio and old partners capitals.
Ø Question on hidden goodwill.
Ø Special focus on WORKMEN COMPENSATION FUND across all the models of partnership accounts.
Ø A question on journal entries in dissolution of partnership.
Ø A question on preparation of memorandum balance sheet in dissolution of partnership firm.
Ø A question on death of a partner for 6 marks.
Ø A question on guarantee of profit to a partner
Ø A question on goodwill treatment especially in retirement/death of a partner: Continuing Partners Capital accounts Dr. to Outgoing Partner’s Capital a/c in gaining ratio. ‘Model’
1. Define Partnership. 1M
The relation between the partners those who have agreed to share the profits of a business carried on by all or anyone of them acting for all.
2. 1. X, Y and Z were partners sharing profits in the ratio of ½, 3/10 and 1/5. X retired from the firm. Calculate the gaining ratio of the remaining partners. 1M
3. Dissolution of partnership does not mean that dissolution of partnership firm. Do you agree? If so why? 1M
4. Mr. M is admitted as a new partner for 1/5 share in the profits of a firm by Kumar and Asish . What is the sacrificing Ratio? 1M
5. State any one purpose for admitting a new partner in a firm. 1M
6. A, B, C and D are partners in a firm sharing profits and losses in the ratio of 5:4:3:2. C retired. Calculate the new as well as gaining ratio of A, B and D in the new firm. 1M
7. What do you mean be ‘Gaining Ratio’? 1M
8. A partnership deed provides for the payment of interest on capital but there was a loss instead of profits during the year 2010-11. At what rate will the interest on capital be allowed? 1M
9. Give the average period in months for charging interest on drawings for the same amount withdrawn at the beginning of each quarter. 1M
11. Where would you record “Interest on Drawings’ when capitals are fluctuating? 1M
12. A and B are partners in a firm. A withdraws Rs.5000 for personal use at the end of every month. The partnership deed is silent regarding the interest on drawings. Calculate interest on drawings. 1M
13. X and Y are partners in a firm. They admitted Z as a new partner for 20% share in profits. Calculate the new profit sharing ratio after Z’s admission. 1M
14. Give one difference between fixed capital account and fluctuating capital account. 1M
15. List two items that may appear on the credit side of Profit and Loss Appropriation A/C 1M
16. Give the formula for calculating ‘gaining share’ of a partner in a partnership firm. 1M
17. A and B are partners in a firm. C is admitted for 25% share . What is the ratio in which A and B will sacrifice their share in favour of C? 1M
18. Distinguish between Dissolution of partnership and Dissolution of Partnership Firm. 3M.
19. Mukesh and Rakesh are partners in a firm sharing profits in the ratio of 3:2. They admitted Kumar for 1/6th share in the profits of the firm with a guaranteed profit of Rs.10,000 per annum. On 31st March, 2014, the profit of the firm was Rs.54,000. Prepare Profit and Loss Appropriation A/c to show the distribution of profits of the firm. 3M
20. A withdraws Rs.1,000 per month on the beginning of every month as drawings whereas B withdraws Rs.1,000 per month at the end of every month. Calculate interest on Drawings of Partners A and B. 3M
21. P and Q are partners in a firm having fixed capitals of Rs.2,00,000 and Rs.3,00,000 respectively. They admitted R as a new partner. R brings in Rs.1,25,000 as his share of capital for 1/6 th share of profits. Calculate the total goodwill of the firm. 3M
22. Please mention the provisions of the Indian Partnership Act, 1932 in respect of the following items:
i) Profit-sharing Ratio
ii) Salary to a Partner
iii) Interest on Capital. 3M
23. Why do you revalue assets and reassess the value of liabilities at the time of Admission of a Partner? 3M
24. A and B sharing profits and losses in the ratio of 3:2 and they admitted C for 1/5 share in the profits. Calculate new profit sharing ratio of A, B and C. 3M
25. A and B are partners in a firm. They admitted C as a new partner of 1/4th share in the profits. He brought Rs.15,000 as his capital and Rs.10,000 as his share of Goodwill premium. Write journal entries. 3M
26. X,Y and Z are partners in a firm sharing profits and losses equally. X retired. Firm’s goodwill as on that date is Rs.27,000. Pass an adjustment entry for treatment of goodwill without opening a goodwill a/c. 3M
27. M, N and O are partners sharing profits and losses in the ratio of 3:2:1. M retired and the new ratio of N and O is agreed as 1:2. Calculate Sacrificing/Gaining ratio as the case may be. 3M
28.
3M
29. Lalan and Balan were partners in a firm sharing profits in the ratio of 3:2. Their fixed capitals on 1-4-2010 were: Lalan Rs.1,00,000 and Balan Rs.2,00,000. They agreed to allow interest on capital @12% per annum and to charge on drawings @15% per annum. The firm earned a profit before all above adjustments of Rs.30,000 for the year ended 31-3-2011. The drawings of Lalan and Balan during the year were Rs.3,000 and Rs.5,000 respectively. Showing your calculations clearly, prepare Profit and Loss Appropriation A/c of Lalan and Balan. The interest on capital will be allowed even if the firm incurs a loss. 4M
30. Sun, Earth and Moon are partners in a firm sharing profits and losses equally. Their fixed capital are Rs. 2,00,000, Rs.1,50,000 and Rs.1,00.000 respectively. The net profit earned during the year 2014-15 Rs. 45,000 was distributed without providing interest on capital @8% p.a. Pass an adjustment journal entry . 4M
31. A and B entered into partnership on 1st April 2009 without any partnership deed. They introduced capitals of Rs.5,00,000 and Rs.3,00,000 respectively. On 31st October 2009, A advanced Rs.2,00,000 by way of loan to the firm without any agreement as to interest.
The profit and loss account for the year ended 31-3-2010 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 a journal entry for the distribution of the profit between the partners and prepare the Capital A/cs of both the partners and Loan A/c of A. 4M
32. A and B are sharing profits and losses in the ratio of 3:2. They admitted C into the firm for 1/6 th share in the profits. C’s share of profit is guaranteed a minimum sum of Rs. 10,000 per annum. The profit for the year ended 31-3-2011 was Rs.54,000. Show the distribution of profits among A, B and C. 4M
33. Kumar and Raja were partners in a firm sharing profits in the ratio of 7:3. Their fixed capitals were Kumar Rs.900,000 and Raja Rs.4,00,000. The partnership deed provided for the following but the profit for the year was distributed without providing for:
a) Interest on capital @9% per annum.
b) Kumar’s salary Rs.50,000 per year and Raja’s salary Rs.3,000 per month.
The profit for the year ended 31-3-2007 was Rs.2,78,000.
Pass the adjustment entry. 5M
34. A, B and C were partners in a firm sharing profits in the ratio of 5:3:2 . On1-1-2005 they decided to share the profits equally. It was also agreed that the change be carried out retrospectively for the last 4 years. The profits for the last 5 years were as follows:
2000-Rs.50,000, 2001-Rs.40,000, 2002- Rs.10,000(loss), 2003-Rs.60,000 and
2004-Rs.1,00,000 Pass necessary adjustment entry. 5M
35. On March31st, 2009 after the close of books of accounts , the capital accounts of A,B and C stood at Rs.24,000, Rs.20,000 and Rs.12,000 respectively. The profit for the year Rs.36,000 was distributed equally. Subsequently it was discovered that interest on capital @ 5% p.a had been omitted. Pass an adjustment entry. 4M
36. Singh and Gupta decided to start a partnership firm to manufacture low cost jute bags as plastic bags were creating many environmental problems. They contributed capitals of Rs.1,00,000 and Rs.50,000 on 1st April, 2012 for this. Singh expressed his willingness to admit Shakti as a partner without capital, who is specially abled but a very creative and intelligent friend of his. Gupta agreed to this. The terms of partnership were as follows:
i) Singh and Shakti will share profits in the ratio of 2:2:1.
ii) Interest on capital will be provided @6%p.a.
Due to shortage of capital, Singh contributed Rs.25,000 on 30th September, 2012 and Gupta contributed Rs.10,000 on 1st January, 2013 as additional capital. The profit of the firm for the year ended 31st March, 2013 was Rs.1,68,900.
a) Identify any two values which the firm wants to communicate to the society.
b) Prepare Profit and Loss Appropriation Account for the year ending 31st March, 2013. 4M
37. A, B and C are partners in a firm. They have omitted interest on capital @10% p.a for three years ended 31st March, 2009. Their fixed capitals on which interest was to be calculated throughout were:
A Rs.1,00,000
B Rs. 80,000
C Rs. 70,000
Give the necessary adjusting journal entry with working notes. 4M
38. Monika, Sonika and Manasa were partners in a firm sharing profits in the ratio of 2:2:1 respectively. On 31st March, 2014 their Balance Sheet was as under:
Liabilities / Amount Rs. / Assets / Amount Rs.Capitals:
Monica 1,80,000
Sonika 1,50,000
Manasa 90,000
Reserve Fund
Creditors / 4,20.000
1,50,000
2,40,000 / Fixed Assets
Stock
Debtors
Cash / 3,60,000
60,000
1,20,000
2,70,000
8,10,000 / 8,10,000
Sonika died on 30th June, 2014. It was agreed between her executors and the remaining partners that
a) Goodwill of the firm be valued at 3 years’ purchase of average profits for the last four years. The average profits were Rs.2,00,000.
b) Interest on capital be provided at 12% p.a.
c) Her share in the profits upto the date of death will be calculated on the basis of average profits for the last four years.
Prepare Sonika’s Capital Account as on 30th June, 2014. 4M
39. A,B and C were partners in a firm having capitals of Rs.80,000;Rs.80,000 and Rs.40,000 respectively. Their current account balances were A: Rs.10,000; B Rs.5,000 and C Rs.2,000(Dr), According to the partnership deed the partners were entitled to interest on capital @5% p.a. C being the working partner was also entitled to a salary of Rs.6,000 p.a. The profits were to be divided as follows:
(a) The first Rs.20,000 in proportion to their capitals
(b) Next Rs.30,000 in the ratio of 5:3:2
(c ) Remaining profits to be shared equally
The firm made a profit of Rs.1,56,000 before charging any of the above items. Prepare the profit and Loss Appropriation Account and pass the necessary journal entry for the appropriation of profits. 4M
40. A,B and C were partners in a firm. Their capitals were A Rs.30,000, B Rs.20,000 and C Rs.10,000 respectively. According to the partnership deed, they were entitled to an interest on capital @ 5% p.a. In addition A was also entitled to draw a salary of Rs.500 per month. B was entitled to a commission of 5% on the profits after charging the interest on capital, but before charging the salary payable to A. The net profits for the year were Rs.30,000 distributed in the ratio of their capital without providing any of the above adjustments. The profits were to be shared in the ratio of 2:3:5. Pass necessary adjustment entry, showing your working clearly. 5M
41. A, B and C are partners in a firm sharing profits in the ratio of 5:3:2 respectively. Their Balance Sheet as on 31st March, 2014 was as follows:
Liabilities / Amount Rs. / Assets / Amount Rs.Creditors
Reserve
Capitals:
A
B
C / 12,000
10,000
30,000
20,000
15,000
------
87,000 / Cash
Debtors
Stock
Machinery
Buildings
Patents / 13,000
8,000
10,000
30,000
20,000
6,000
------
87,000
On 1st October, 2014, due to illness B died. It was agreed between the firm and B’s Executors that the amount due to B will be used for construction of a community hall in the village. As per the agreement:
i) Goodwill is to be valued at two years’ purchase of the average profits of previous five years, which were: 2010 Rs.10,000; 2011 Rs.13,000; 2012 Rs.12,000, 2013 Rs.15,000 and 2014 Rs.20,000.