Commerce Classes / By:- SUBHASH THAKUR 9810190005
FUNDAMENTALS OF PARTNERSHIP
INTEREST ON DRAWINGS
CASE I Product method for Irregular Drawings:
When partners withdraw the Different Amount on Different Dates.
Interest on Drawings = Sum of Products of Drawings x 100 x 12
Product of Drawings = Amount of Drawings x No. of Months for which it has been used
1.A is partner in a firm. For the year ending 31.12.2005, A’s drawings were :
1st March 1,000
1st May 750
1st July 1,250
1st September 500
1st November 500
Interest on drawings is charges @10% per annum.
Calculate interest on drawings of A.
2.In a partnership, partners are charged interest on drawings at 15% p.a. During the year ended 31st Dec.,
2006, a partner drew as follows:
Feb. 1Rs. 2,000
May 1Rs. 5,000
June 30Rs. 2,000
Oct. 31Rs. 6,000
Dec. 31Rs. 2,000
What is the interest chargeable to the partner?
3.During the year ended 31-12-2005, a partner made the following drawings:
January 21 Rs. 2,000; April 1 Rs. 5,000; July 31 Rs. 4,000; December 1 Rs. 3,000; December 31 Rs.
Calculate interest on drawings when it charged @10% p.a.
CASE IIWhen a Fixed Amount is Withdrawn on a Fixed Date:
1.If the Partners withdraw same Amount in the beginning of every month for full year.
Rate 1 1
Interest on Drawings = Total Drawings x 100 x 6 2 x 12
2.If the Partners Withdraw same Amount in the Middle of Every Month for full year.
Interest on Drawings = Total Drawings x 100 x 6 x 12
3.If the Partners Withdraw same Amount at the End of Every Month for full year.
Rate 1 1
Interest on Drawings = Total Drawings x 100 x 5 2 x 12
4. When the same Amount is Withdrawn at the beginning of Each Quarter.
Rate 1 1
Interest on Drawings = Total Drawings x 100 x 7 2 x 12
5.When the same Amount is Withdrawn at the end of Each Quarter.
Rate 1 1
Interest on Drawings = Total Drawings x 100 x 4 2 x 12
6.If the Partners Withdrawn at the end of Each Quarter.
Rate 1 1
Interest on Drawings = Total Drawings x 100 x 3 2 x 12
7.If the Partners Withdraw same Amount at the End of Every Month for 6
Months Regularly and Books are Closed Half Yearly Ending.
Rate 1 1
Interest on Drawings = Total Drawings x 100 x 2 2 x 12
8.If Partners Withdraw same Amount the middle of every month for 6
months regularly and books are closed half yearly ending.
Interest on Drawings = Total Drawings x 100 x 3 x 12
CASE III If the Partners Withdraw Amount during the year. But Date of Drawings is not given:
(a) If interest on Drawings is charged @ 10% p.a.
Interest on Drawings = Total Drawings x 100 x 12
(b) If Interest on Drawings is charged @ 10% p.a.
Interest on Drawings = Total Drawings x 100
4.A and B are partners in a firm. They share profits and losses equally. Their monthly drawings are Rs.
2,000 each. Interest on drawings is to be charged @ 10% p.a.
Calculate interest on A’s drawings for the year 2005 assuming drawings are made (i) in the beginning
of every month, (ii) in the middle of every month, and (iii) at the end of every month.
(Ans: (i) Rs. 1,300; (ii) Rs. 1,200; (iii) Rs. 1,100)
5.Calculate interest @ 8% p.a. on drawings made by the following partners: (a) Raj withdrew Rs. 600 at
the end of every month. (b) Deepak withdrew Rs. 700 in the beginning of every month. (c) Mukesh
withdrew Rs. 800 in the mid of every month.
6.How will you calculate interest on drawings in following cases?
(i) Rs. 500 drawn on last day of every month.
(ii) Rs. 500 drawn on 15th of every month?
(Ans: (i) int. = 6000 x Rate of Int. / 100 x 5 1/2 x 1/12 (ii) int. = 6000 x Rate of Int. / 100 x 6/12)
7.A partner makes a drawing of Rs. 1,000 p.m. Under the Partnership Deep, interest is to be charged at
15% p.a. What is the interest that should be charged to the partner?
(Ans. Rs. 900)
8.A and B are two partners sharing profits equally. A drew regularly Rs. 400 at the end of every month for the six months ending 30th June, 1992. Calculate interest on drawings at 5% p.a.
(Ans: Interest on Drawings Rs. 25)
9. A and B are two partners sharing profits equally. A drew regularly Rs. 400 at the beginning of every month for the six months ending 30th June, 1992. Calculate interest on drawings at 5% p.a.
(Ans: Interest on Drawings Rs. 35)
10.Ram and Mohan, two partners, draw for private use Rs. 6,000 and Rs. 4,000. Interest is chargeable @ 6% p.a. on the drawings. What is the interest on Drawings? Also calculate interest on Drawings if interest is chargeable @ 6%.
(Ans: Ram Rs. 180 and Mohan Rs. 120; Ram Rs. 360 and Mohan Rs. 240)
11.A and B are partners sharing profits and losses equally with capitals of Rs. 30,000 and Rs. 20,000 respectively.
Their drawings during the year are as follows:
A’s drawings on 31-3-1992Rs. 500
B drew Rs. 300 at the end of each month. The deed provides interest on capitals and drawings at 6% p.a.
Calculate interest on capitals and drawings.
(Ans: Int. on Capitals: A Rs. 1,800 : B Rs. 1,200 ; Interest on Drawings: A Rs. 67; B Rs. 99)
11(B). B and M are partners in a firm. They withdrew Rs. 48,000 and Rs. 36,000 respectively duri9ng the year evenly at the middle of every month. According to the partnership agreement, interest on drawing is to be charged @ 10% p.a. Calculate the interest on drawings of the partners using appropriate formula.
(Ans: Rs. 2,400 ; B Rs. 1,800) (CBSE Sample Paper 1,2003)
INTEREST ON CAPITAL
12.Rajendra Mohan and Radhey Mohan are partners and they had Rs. 40,000 and Rs. 60,000 in capital accounts as on 1st January, 1990 respectively. Rajendra Mohan paid in further Rs. 5,000 on 1- 8-90 and another Rs. 5,000 on
15-11-90.Compute the interest on capital to be allowed to Rajendra Mohan assuming the rate of interest to be 6%
(Ans: Total Interest to be paid on Rajendra Mohan’s Capital Rs. 2,562.50) (CBSE Comptt. 1991)
13.A and B started business on 1.1.2001 with capitals of Rs. 60,000 and Rs.40, 000 respectively. During the year, A introduced Rs. 10,000 to the firm as additional capital on 1.7.2001. They withdrew Rs .500 per month for the house expenses in lieu of profit . Interest on capital is to be allowed @ 10% per annum. Calculate the interest payable to A and B for the year ending 31.12.2001.
(Ans. Rs. 6,500; Rs. 4000)[C.B.S.E.Comptt.1991]
14.(a) X and Y contribute Rs. 20,000 and Rs. 10,000 respectively. They decide to allow interest on capital @6% p.a. Their respective share of profits is 2:3 and the business profit (before interest) for the year is Rs.1, 500. Show the distribution of profits (a) where there is no agreement except for interest on capitals, and (b) where there is a clear agreement that the interest on capitals will allowed even if it involves the firm in loss.
[Ans. (a) int. on capital: A Rs.1,000; B Rs.500;(b) Loss: A Rs. 120;B Rs . 180]
14.(b) A and B are partners sharing profit or loss in the ratio of 3:2 having capital balances of Rs.50,000 & Rs.40,000 on 1.4.2003. On 1st July, 2003 A introduced Rs.10,000 as his additional capital whereas B introduced only Rs. 1,000. If the interest on capital is allowed to partners @10% p.a. calculate the interest on capital if the financial year closes on 31st of march every year.
(Ans. Rs.5,750;Rs.4075)[C.B.S.E Sample Paper 11, 2003]
INTEREST ON LOAN
15. A and B are Partners in a firm sharing profits in the ratio of 3:2. They had advanced to the
firm a sum of Rs.30,000/- as a loan in their profit sharing ratio on 1st July 2005. The
partnership deed cis silent on the question of interest on loan from partners . Compute the
interest payable by the firm to the partners ; assuming the firm closed its books on 31st dec.
(Ans. Rs. 540; Rs 360)[CBSE 1999]
16. M and N are partners in a firm. M has given a loan of Rs.8, 000 to the firm on 1st April 2004.
The partnership deed is silent upon the question of provision of interest on partners’ loan .
Compute the amount of Interest payable of the loan advanced by M to the firm assuming the
Books are closed on 31st December each year.
(Ans. Rs. 360)[CBSE 1998]
DISTRIBUTION OF PROFITS
If A’s Interest on capital Rs.5,000, B’s Interest on capital Rs. 3,000 and B’s salary Rs.6,000.
Case 1. Profit for the year before charging Interest on capital and B’s Salary Amounted to Rs.25, 000.
Net Profit for the year amounted to Rs. 25,000.
Dr.Profit & Loss appropriation Amount Cr.
For the year ending …………..Particulars / Amount / Particulars / Amount
Interest on capital A/c :
B’s Salary A/c
Profit transferred to :
A’s Capital A/c 5,500
B’s Capital A/c 5,500 / 8,000
25,000 / Profit Loss A/c (profit for the year ) / 25,000
Case 2. Profit for the year before charging Interest on capital but after charging B’s Salary Amounted
to Rs. 25,000.
Dr.Profit & Loss Appropriation Amount Cr.Particulars / Amount / Particulars / Amount
B’s Salary A/c
Interest on Capital A/c:
Profit transferred to :
A’s Capital A/c 8,500
B’s Capital A/c 8,500 / 6,000
31,000 / Profit and Loss A/c
(Profit for the year ) (25,000+6,000) / 31,000
17. A and B are partners with capitals of Rs. 60,000 and Rs. 20,000 respectively on 1st Jan, 2005.
The trading profit (before taking into account the provisions of the deed) for the year 2005
was Rs. 24,000.Interest on capitals is to be allowed at 6% per annum . B is entitled to salary of
Rs. 6,000 per annum. The drawings of the partners were Rs.6, 000 and Rs. 4,000; the interest
for A being Rs. 200 and for B Rs.100.Prepare Profit and Loss appropriation A/c .
(Ans: Rs. 13,500)
18.(a) On 1st jan,2005 , X and Y entered into partnership contributing Rs.20,000 and Rs.15,000
respectively and sharing profits in the ratio of 3:2. Y is to be allowed a salary of Rs. 4,000 per
year. Interest on capital is to be allowed at 6 % per annum . During the year, X withdrew Rs.
3,000 and Y Rs. 6,000, interest on the same will be 6%. Profit in 2005 before the above-noted
adjustment was Rs.10,560. Prepare profit and Loss Appropriation A/c .
(Ans: Profit : Rs. 5,000)
18.(b) A and B are partners in a firm , sharing profits and Losses in the ratio of 3:2.The Profit and
Loss Account of the firm for the year ending March 31,2005 shows a net profit of Rs.1,51,900
Prepare the Profit and Loss Appropriation Account by taking into consideration the following
(i) Partners’ Capitals on April 1.2001: A—Rs.32, 000; B—Rs.12, 000.
(ii) Partners’ drawings during the year amounted to A—Rs.14, 000; B –Rs.12, 000.
(iii) Interest on Capital was allowed @10 % p.a.
(iv) Interest on drawings was to be charged @ 10 % p.a.
(v) Partners’ salaries: A Rs .14, 000 and B Rs. 12,000.
19. Amit and Vijay started a partnership Business on 1st Jan, 2005.Their capital contribution were
Rs.2, 00,000 and Rs.1, 50,000 respectively. The partnership deed provided inter alia that:
(i) Interest on capital at 10% p.a.
(ii) Amit to get a salary of Rs. 2,000 p.m. and Vijay Rs. 3,000 p.m.
(iii) Profits are to be shared in the ratio of 3:2.
The profits for the year ended 31st December, 2005 before making above appropriation were
Rs. 2, 16,000. Interest on drawings amounted to Rs.2, 200 for Amit and Rs.2, 500 for Vijay.
Prepare Profit and Loss Appropriation Account and Partner’s Capital Account.
(Ans: Profit :Amit Rs.75,420; Vijay Rs. 50,280)(CBSE. Annual Exam (Delhi),1992,set 3)
20. Kaku and Polu started a Partnership business on 1st Jan, 1985. They contributed Rs. 80,000 and
Rs.60, 000 respectively, as their capitals. The terms of the partnership agreement are as under:
(i) Interest on capital and drawing @ 12 % per annum.
(ii) Kaku and Polu to get a monthly salary of Rs. 2,000 and Rs. 3,000 respectively.
(iii) Sharing of profit or Loss will be in the ratio of their capital contribution.
The Profit for the year ended 31st December, 1985, before making above appropriation was Rs.
1, 00,300. The drawing of Kaku and Polu were Rs. 40,000 and Rs. 50,000 respectively. Interest
on drawings amounted to Rs. 2,000 for Kaku and Rs. 2,500 for Polu.
Prepare profit and Loss appropriation account and partners’ capital accounts assuming that their
Capitals are fluctuating.
(Ans: Profit Kaku Rs.16,000;Polu Rs.12,000) (Delhi S.S.C.E,1986)
21.A and B formed a partnership on 1st Jan,1992. They agreed that out of profits:
(i) A should receive a salary of Rs.500 per month.
(ii) Interest on capital should be allowed @ 6 % p.a. and
(iii) Remaining profits be divided equally .
A contributed a capital of Rs. 50,000 on 1st jan,1992 but B brought in his capital of Rs.1,00,000
On 1st April,1992. During the year, the drawing were A Rs.15,000 and B, Rs 20,000. Profits
Before the above noted salary and interest were Rs.50,000. Prepare Profit and Loss
Appropriation Account and capital account of the partners and Partner’s Current Account.
(Ans: Current A/c :A, Rs. 12,250; B, Rs.2,750)
22.(a) A,B and C are partnership with respective capitals of Rs. 20,000. Rs. 15,000 and Rs.10,000.
B and C are entitled to annual salaries of Rs.1,000 and Rs. 1,500 respectively payable before
division of profits. Interest on capital is allowed at 5 percent per annum , but interest is not
Charged on drawings of the first Rs.6,000 divisible as profit in any year, A is entitled to 50 per
Cent ,B to 30 percent and C to 20 percent. Annual profits in excess of Rs.6,000 are divisible
Equally. The profit for the year ended 31st December ,1992 was Rs.10,050 after debiting
Partner’s salaries but before charging interest on capital . The partner’s drawings for the year
A Rs. 4,000 ; B Rs.3,750 and C Rs. 2,000. The balance on the partner’s current accounts on 1st
Jan,1992 were A Rs.1,500 credit ; B Rs. 250 credit ; C Rs. 500 debit .
Prepare Profit and Loss Appropriation Account and the partner’s Current Accounts for the year
1992 and Partners Capital Account.
(Ans: Profit: A Rs. 3,600; B Rs. 2,400; C Rs. 1,800)
22.(b) Pappu and Munna are partners in a firm sharing profit in the ratio of 3:2. The partnership
deed provided that Pappu was to be paid salary of Rs. 2,500 per month and Munna was to get a commission of Rs.10,000 per year. Interest on capital was to be allowed @ 5 % per annum and interest on drawings was to be charged @ 6 % per annum. Interest on Pappu’s drawings was Rs.1,250 and on Munna’s drawings Rs.425. Capital of the Partners were Rs.
2,00,000 and Rs.1,50,000 respectively, and were fixed. The firm earned a profit of Rs.90,575 for the year ended 31.03.2004.
Prepare Profit and Loss Appropriation Account of the firm .
(Ans: Profit Rs. 34,750) (CBSE 2005)
23.A,B and C are partners sharing profits and Losses in the proportion of A ½,B 3/10, C 1/5 after providing for interest at 5 % on their respective capitals, viz. A Rs. 50,000, B Rs. 30,000 and C
Rs. 20,000 and allowing B and C a salary of Rs. 5,000 each p.a.. During the year 1992. A has drawn Rs. 10,000 and B and C in addition to their salaries have drawn Rs. 2,500 and Rs 1,000 respectively . The profit and Loss A/c for the year ended 31st Dec. 1992 showed a net profit of Rs. 45,000 before charging (1) interest on capital, and (2) partners salaries. On 1st Jan, 1992 , the balances in the Current A/c s of the partners were A (Cr.) Rs. 4,500 , B (Cr.)Rs. 1,500 and C (Cr.)Rs. 1,000. Interest is not charged on drawing on Current Account Balances . Show the Partners Capital and Current Accounts as at 31st December ,1992 after division of profits in accordance with the partnership agreement .
( Ans: Balances in Current A/c: A(Cr.)Rs.12,000;B(Cr) Rs.9,500;C(Cr.) Rs.7,000)
24.Ali and Bahadur are partners in a firm sharing profits and Losses as ali 70 % and Bahadur
30 %. Their Capital Accounts, as on 1st April,1992 stand as Ali Rs. 25,000 and Bahadur Rs.
20,000 . The partners are allowed 5% per annum by way of interest on capitals. The
drawings of the partners during the year ended 31st march ,1993 amounted to Rs.3,500 and
Rs. 2,500 respectively.
The profit during the year , before charging interest on capital and annual salary of Bahadur
at the of Rs. 3,000 , amounted to Rs. 40,000, 10 % of this profit is to be kept in a Reserve
account. Prepare Profit and Loss Appropriation Account and Current Account.
(Ans: Ali’s Current A/c Bal. Rs 19275; Bahadur’s Current A/c Rs.10,725 )
25.A and B are partners sharing profits in proportion of 3:2 with capitals of Rs.40,000 and Rs.
30,000 respectively. Interest on capital is agreed at 5 % p.a. B is to be allowed an annual
salary of Rs. 3,000 which has not been withdrawn . During 1991, the profit for the year prior
to calculation of interest on capital but after charging B’s salary amounted to Rs. 42,000.
A provision of 5 % of this amount is to be made in respect of commission to the manager .
Prepare an Account showing the allocation of profits.
(Ans: A & B each gets Rs.66,614 as profit and A gets Rs. 2,250 as interest on loan )
26.Mahesh and Ramesh are partners with capital of Rs. 50,000 and Rs. 60,000 respectively . On
1st jan,1998, Mahesh gives a loan of Rs 10,000 and Ramesh introduced Rs.20,000 as a
additional capital. Profit for the year ending 31st march 1998 was Rs. 15,200. There is no
partnership deed . Both Mahesh and Ramesh expect interest @ 10 % p.a. on the loan and
additional capital advanced b them. Show how the profit would be divided ? Give Reason ?
(Ans. Profit Rs. 7,525 each ) (CBSE 2001 Comptt.)
CASE I: Omission of Interest on Capital :
Ex . A,B,C and D are partners sharing profits and losses in the ratio of 4:3:3:2 and their
respective capitals on 31st December, 2005 were Rs. 3,000, Rs 4,500 ,Rs. 6,000 and Rs.
4,500. After closing and finalizing the accounts, it was found that interest on capital @ 6%
p.a was omitted . Instead of altering the signed accounts ,it was decided to pass a single
adjustment entry on 1st Jan, 2006 crediting or debiting the respective partners accounts .
sol: A’s Capital A/c …..Dr. 180
C’s Capital A/c 90
C’s Capital A/c 90
(Being the adjustment entry due to omission of interest on capital)
Working :Interest on Capital to be
Credited @ 6 % p.a
Excess Profit taken back in profit sharing ratio / A
Dr. Cr .
360 -- / B
270 -- / C
270 -- / D
180 -- / Total
Difference (Net Effect) / 180-- / ---- / --90 / -- 90
27. A,B and C are partners. Theirs capital accounts on 1st Jan,1992, A Rs . 3000 ; B Rs.5,000 ,C Rs.
8,000 and D Rs. 10,000. After the accounts for the year have been Prepared , it is discovered
that interest at 5 % p.a. as Provided for in the partnership agreement has not been credited to the
Partners capital accounts before distributing profits. Instead of altering the signed Balance
Sheet it is decided to make an adjusting entry at the beginning of the next year . Give the
Necessary journal entry.
(Ans: Dr. A & B Rs.175 & Rs. 75 & Cr. C & D Rs . 75 & Rs .175) (SSE Delhi )
28.On 31st December 1995 , After closing the capital accounts, capitals of X,Y and Z stood at Rs.
80,000, Rs.60,000 and Rs. 40,000 respectively . It was subsequently discovered that interest
@ 5 % p.a. on capital at the beginning of the year was left out. Their drawing during the year
were Rs. 20,000, Rs. 15,000 and Rs. 9,000 respectively . Profit for the year was Rs. 1,20,000.
Partners share profit as 3:2:1. Give necessary adjustment entry and show the working notes.
(Ans: Dr. X Rs. 600, Cr .Y Rs. 17. Cr. Z Rs.583) (CBSE AI 1999)
29.A, B and C were partners in a firm sharing profits in the ratio of 5:4:3. After division of the
profit for the year ended 31.3.2001 their capital were Rs 5,00,000;Rs.4,00,000; and Rs.3,00,000
respectively . During the year they withdrew Rs . 30,000 each . The Profit of the year was Rs.
1,20,000. The partnership deed provided that interest on capital will be allowed @ 10 %p.a .
While preparing the final accounts interest on capital was not allowed .
You are required to calculate the capitals of A,B and C as on 1.4.2000 and pass the necessary
Adjustment entry for providing interest on capitals. Show Your workings clearly.
(Ans: Dr. A Rs . 750,Cr. Rs.750) (CBSE delhi 2002)
30.The net trading profits of X, Y and Z for the year ended 31st December 1992 was Rs.60,000
and the same was distributed amongst the partners X,Y and Z in their agreed ratio of 3:2:1.
It was subsequently discovered that the under-mentioned transactions were not passed through
(i) Interest on capital @ 5 % p.a.
(ii) Interest on drawings amounting to X Rs.700,Y Rs.500, Z Rs. 300.
(iii) Partnership salary --- X Rs. 10,000 and Y Rs.1,500 p.a.
(iv) An agreed commission of Rs. 6,000 payable to X arising out of a special transaction
of the firm .
The capital accounts of partners were fixed X Rs.1,00,000, Y Rs. 80,000 and Z Rs. 60,000.
Give a single journal entry to record necessary adjustment.
(Ans: Dr. Y’s Current A/c by Rs. 600 and Z’s Current A/c by Rs. 2,900 and Cr. X’s current A/c by Rs. 3,500)
- Mohan , Vijay and Anil are partners , the balances on their capital accounts being Rs. 30,000
Rs.25,000 and Rs. 20,000 respectively . In arriving at these figures , the profits for the year ended December 31,1992 Rs. 24,000 had already been credited to partners in the proportion
in which they shared profits. Their drawings were Rs. 5,000(Mohan ), Rs. 4,000(Vijay) and Rs.
3,000(Anil) in 1992. Subsequently the following omission were noticed and it was decided to
bring them into account:
(i) Interest on capital at 10 % per annum .
(ii) Interest on drawings Mohan Rs. 250, Vijay Rs. 200, and Anil Rs. 150.
Make the necessary corrections through a journal entry a3nd show your workings clearly .
(Ans: Journal :Dr. Anil by Rs. 550 and Cr. Mohan by Rs. 550;Corrected profit transferred to each partners Rs. 6,100)
Case II: When Interest on capital allowed at Higher Rate in Past : (Cancellation of Excessive Interest )
Ex.Ram , Mohan and Sohan sharing profits and losses equally have capital Rs. 1,20,000, Rs.90,000 an Rs. 60,000. For the year 1992, Interest was credited to them at 6 % instead of 5 %. Give adjusting journal entry .
- P,Q and R are partners in a firm sharing profits and losses in the ratio 2:5:3. Their –fixed capital were Rs. 2,00,000, Rs.3,00,000 and Rs.3,00,000 respectively .For the year 20X1 Interest on capital was credited to them @ 12 % instead of 10 % . Show your working notes clearly and pass the necessary adjusting entry .
(Ans: Dr. P & R Rs.800 and Rs. 1200; Cr. Q Rs. 2000) (CBSE 1997)
- Ram and Mohan were partners in a firm sharing profits in 3:2 ratio . Their capitals were: Ram
Rs.1,20,000 and Mohan Rs. 90,000. For the year 1999 interest on capital was credited to them