Class 12 Acc Ch 1. FUND-PARTNERSHIP.pptx

Fundamentals of
Partnership Firms

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
Index

Businessmen wants
Growth of the business
To earn the maximum profits

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

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

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
Carried on by all or any of them acting for all
Lawful business
Association of two or more persons
Agreement between the Partners
Profit sharing
C
A
A
P
L

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.

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.
PROBLEM
1. Salary is not payable to any partner. Therefore X is not
entitled to any salary
Solution

following cases?
extra time spent
proposal
PROBLEM
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.
Solution

following cases?
extra time spent
proposal
PROBLEM
3. A person cannot be introduced as partner without the consent
of all partners
Solution

following cases?
extra time spent
proposal
PROBLEM
4. Profit will be shared equally between X and Y after deducting
interest on X loan of 6% p.a. on Rs 10,000
Solution

In +1 we had studied about
Accounting process
Journal Ledger
Trial
balance
Financial
accounts

Profit and loss account
Net profit/net loss
Trading account
Gross profit/gross loss
At the time of sole proprietorship

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

Profit and loss appropriation account
Divisible profit/loss among partners
Profit and loss account
Net profit/net loss
Trading account
Gross profit/gross loss
At the time of partnership

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
Salary/ Commission to partner
General reserves

XXXX
By Net Profit
To Partner Salary
XXXX
To Interest On Capital XXXX
By Interest on drawings
To Profit transferred to Partners
capital if any
XXXX
XXXXX
XXXXX
To General Reserves XXXX
XXXXX
By Gross profit
Profit and loss A/c
To profit transferred to P/L App
To interest on partner’s loan XXX
XXXX
To Manger commission XXX
XXXX
To salary to Employee XXX
Charge against profit
/revenue
and loss App
To Partners Commission XXXX
By Loss transferred
to P/L App
XXXX
To Net Loss ( if any) XXXX
To Rent paid to partner’s XXX

Difference
Basis Profit and loss A/c Profit and loss App A/c
Objective
Prepared to ascertain profit
earned and loss incurred
from the main course of
business.
Prepared to show the
appropriation of profit
Partnership
Agreement
Items in this account may or
may not be related to the
partnership agreement
Items in this account are
shown as per the partnership
agreement.
Prepared by following the
matching concept
Starts with Begins with gross profit or
gross loss.
Begins with net profit/ loss or
the opening balance that is
available
Prepared by following
partnership agreement
Concept
or Basis

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
Particulars A B Particulars A B
Partners Capital A/c
By Bank XXXXX XXXXX
By Bank (additions) XXXX
By Interest on cap XXXX XXX
By P/L App XXXXX XXXX
To Drawing XXX XXX
To interest Drawing XXX XXX
To balance c/d XXX XXX
By Salary XXXX XXX
XXX XXXX
XXXXX XXXXX
By Commission XXXX XXXXX
To Bank (withdrawn) XXXXX XXXXX

Types of
capital
Fixed capital
Fluctuating
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
By Bank XXXXX XXXXX
To Drawing XXX XXX
By Salary XXXX XXX
XXX XXXX
XXXXX XXXXX

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
By Balance XXX XXXXX
XXX XXXX
XXXXX XXXXX
By Balance b/d XXXX XXXX
By P/L App XXXX XXXX
To Drawing XXX XXX
By Salary XXXX XXX
XXX XXXX
XXXXX XXXXX
By Commission XXXX XXXX
To Balance b/d XXXX XXXX
Partners Current A/c
Capital withdrawn/drawing
against capital
Drawings against profits

Difference
Basis Drawings against capital Drawings against profits
Where
debited
It is debited into capital
account
It is debited in
drawings account
Part It is a part of
capital.
It is debited in drawings
account
It reduces the
capital.
It does not reduce
the capital
Effect

Difference
Basis Fixed capital Fluctuating capital
Change in
capital
Capital normally remains
unchanged except under
special circumstances.
Capital is changing from
period to period.
Number of
Accounts
Partner has two accounts,
namely, capital account and
current account
Partner has only one
account i.e., Capital account
All adjustments relating to
partners are recorded in
the Current Accounts
Balance
Capital Account shows always
a credit balance.
Current account may
sometimes show debit or
credit balance
Capital Account shows
always a credit balance.
All adjustments relating to
partners are recorded directly
in the Capital Accounts itself
Adjustments

Particulars Debit Credit
Profit and Loss App Dr
To Interest on capital A/c
Transaction
For interest on capital
Journal entries relating to interest on capital
Journal
Interest on capital Dr
To partner’s Capital/current
XXXX
XXXX
XXXX
XXXX

To Partners Salary A/c
Transaction
For salary to partners
Journal entries relating to salary to partners
Journal
Partners Salary Dr
To partner’s Capital/Current
XXXX
XXXX
XXXX
XXXX
To Partners Salary XXXX
By Salary XXXX XXX

To Partners Commission A/c
Transaction
For Commission to
partners
Journal entries relating to Commission to partners
Journal
Partners Commission Dr
XXXX
XXXX
XXXX
XXXX
By Partners
Commission
XXXX XXX

Interest on Drawings Dr
To Profit And Loss App A/c
Transaction
For interest on Drawings
Journal entries relating to interest on Drawings
Journal
To partner’s Capital/current Dr
XXXX
XXXX
XXXX
XXXX
By Interest On Drawings XXXX
To Int on Drawings XXXX XXX

To partner’s Capital or current
Transaction
For profit transferred
to partners Capital
Journal entries relating when there is profit
Journal
XXXX
XXXX
To Partners capital A/c
Profit transferred to
Capital/current A/c
XXXX
By Profit and Loss
App
XXXX XXX

To partner’s Capital/ current
Transaction
For Loss transferred to
partners Capital
Journal entries relating when there is Loss
Journal
XXXX
XXXX
By Partners capital A/c
Loss transferred to
Capital/current A/c
XXXX
To Profit and Loss
App
XXXX XXX

XXXX
By Net profit
To Partner Salary
XXXX
capital if any
XXXX
XXXXX
XXXXX
XXXXX
By Net profit
Profit and loss A/c
XXXX
XXXX
By Bank XXXXX XXXXX
To Drawing XXX XXX
By Salary XXXX XXX
XXX XXXX
XXXXX XXXXX

•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.
Interest on capital
XXXX
By Net profit
To Partner Salary
XXXX
capital if any
XXXX
XXXXX
XXXXX
XXXX
and loss App
(unless specified)

Calculate
Particulars A B
Calculation of opening capital
Closing capital
XXXXXX
Less:- share of profit
Add Drawing during year XXXXXX
XXXXXX
Opening capital XXXXXX
XXXXXX
XXXXXX XXXXXX
XXXXXX
Less :- Additional Capital XXXXXX
Calculation of opening capital when closing capital is given

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
2,50,000
8
10
x = 5,000
3
12
x
= 2,00,000
8
10
x = 12,000
9
12
x
On Rs 2,50,000 for 3 months
17,000
=
Interest on Neeraj Capital
1,50,000
8
10
x = 3,000
3
12
x
= 2,00,000
8
10
x = 12,000
9
12
x
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
4
100
x = 8,000
6
12
x
= 4,50,000
6
100
x = 18,000
8
12
x
i.e. from 1st
April
2003 to 31st
July
2003
i.e. from 1st
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
4
100
x = 6,000
6
12
x
= 3,40,000
6
100
x = 11,900
7
12
x
i.e. from 1st
April
2003 to 31st
July
2003
i.e. from 1st
August 2003 to
Feb 29th 2004
= 19,525
= 3,25,000
6
100
x = 1,625
1
12
x i.e. from 1st
March 2004 to
31st
March 2004

Calculate
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
20,000
added in the ratio of 3:1)
Add Drawing during year 80,000
2,50,000
Opening capital ( 1-4- 2009 6,20,000
40,000
6,00,000 3,00,000
60,000
Less :- Additional Capital 70,000
When closing capital is given

Particulars A B
20,000
2,50,000
Opening capital ( 1-4- 2009 6,20,000
40,000
6,00,000 3,00,000
60,000
Less :- Additional Capital 70,000
=
Interest on A’s
Capital
6,20,000
12
10
x = 74,400
12
12
x
=
Interest on B’s
Capital
2,50,000
12
100
x = 15,000
6
12
x
= 3,20,000
12
100
x = 19,200
6
12
x
34,200

Calculation of profit sharing ratio
on the basis of capital
When capital remains
unchanged during the year
When capital is changed
during the year
Simple Method Effective capital
employed method

Calculate
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
Profit sharing ratio would
be
50,000 40,000 70,000
= :
:
5 4 7
= :
:
A B C
When capital remains unchanged
=
A share in the profits 32,000
5
16
x = 10,000
=
B share in the profits 32,000
4
16
x = 8,000
=
C share in the profits 32,000
7
16
x = 14,000

Calculate
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 12 (Months)
x = 6,00,000
=
Effective capital of B 40,000 4 (Months)
x = 1,60,000
= 46,000 5 (Months)
x = 2,30,000
= 30,000 3 (Months)
x = 90,000
4,80,000
=
Effective capital of C 80,000 5 (Months)
x = 4,00,000
= 60,000 7 (Months)
x = 4,20,000
8,20,000
be
6,00,000 4,80,000 8,20,000
= :
:
30 24 41
= :
:
When capital keeps on changing (effective capital employed

Calculate
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.
be
6,00,000 4,80,000 8,20,000
= :
:
30 24 41
= :
:
=
A share in the profits 23,750
30
95
x = 7500
=
B share in the profits 23,750
24
95
x = 6,000
=
C share in the profits 23,750
41
95
x = 10,250
When capital keeps on changing (effective capital employed

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
Problem

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
1,96,000
By Net profit
Shiv
To Partner Salary
20,000 (5000 x 4)
Hari 20,000 (5000 x 4) 40,000
Shiv
To Interest On Capital
40,000
Hari 22,000 62,000
Shiv
By interest on drawings
600
Hari 500 1,100
To profit transferred to
Shiv 57,060
Hari 38,040 95,100
1,97,100
1,97,100
Particulars SHIV HARI Particulars SHIV HARI
By Bank 500,000 2,00,000
By Bank 1,00,000
By interest on cap 40,000 22,000
By P/L App 57,060 38,040
To Drawing 12,000 10,000
To interest Drawing 600 500
To balance c/d 6,04,460 3,69,540
By Salary 20,000 20,000
6,17,060 3,80,040
6,17,060 3,80,040
Interest On Capital:-
=
Shiv Capital 5,00,000
8
10
x = 40,000
12
12
x
=
Hari Capital 2,00,000
8
10
x = 4,000
3
12
x
=
Hari Capital 3,00,000
8
10
x = 18,000
9
12
x
Note:-If date of drawing
is not given interest will
be charged for 6 months
Interest On Drawings:-
=
Shiv Drawings 12,000
10
100
x = 6,00
6
12
x
=
Hari Drawings 10,000
10
100
x = 5,00
6
12
x
Fluctuating capital (
if nothing mentioned

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
Problem

solution
6,00,000
By Net profit
Sarita
To Partner Salary
1,20,000
Vandana 1,80,000
3,00,000
Sarita
48,000
Vandana 36,000 84,000
Sarita
10,000
Vandana 12,500 22,500
Sarita 1,02,000
Vandana 76,500 1,78,500
6,22,500
6,22,500
Particulars Sarita Vandana Particulars Sarita Vandana
By Bank 4,00,000 3,00,000
By Interest on Cap 48,000 36,000
By P/L App 1,02,000 76,500
To Drawing 2,00,000 2,50,000
To interest Drawing 10,000 12,500
To balance c/d 4,60,000 3,30,000
By Salary 1,20,000 1,80,000
6,70,000 5,92,500
6,70,000 5,92,500
To provision for donation( 10% of
6,00,000
60,000
=
Sarita 4,00,000
12
100
x = 48,000
12
12
x
=
Vandana 3,00,000
12
100
x = 36,000
12
12
x
Values highlighted in his case is firm is sensitive towards the education
of specially able children

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.
Problem

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

15,6000
By Net profit
A’s Current
3,000
B’s Current 3,000
10,000
1,40,000
15,6000
15,6000
To Salary ( C)
6,000
A’s Current 51,000
Particulars X Y Z Particulars X Y Z
By Balance 60,000 60,000 80,000
To balance 60,000 60,000 80,000
60,000 60,000 80,000
60,000 60,000 80,000
By Balance 10,000 5,000
To balance 2,000
By Interest on cap
By P/L App
3,000 3,000 4,000
51,000 45,000 44,000
To balance c/d 64,000 53,000 52,000
64,000 53,000 54,000
64,000 53,000 54,000
By Salary 6,000

Manager
commission
Partners
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’.
Partner’s commission

XXXX
By Net profit
To Partner Salary
XXXX
capital if any
XXXX
XXXXX
XXXXX
XXXX
Charge against
profit and loss
App
XXXXX
By Gross profit
Profit and loss A/c
XXXX
To salary to employee XXX
Charge against
profit /revenue
Manager commission
Partners commission

Net profit
On profit before charging such commission
Rate
x
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
22,000
10
x
100
=
2,200
=
commission

Net profit
On profit after charging such commission
Rate
x
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
22,000
10
x
110
=
2,000
=
commission

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.
Problem
By Net profit
A’s
50,000
B’s 25,000 75,000
2,50,000
3,75,000
3,75,000
To Commission to B
30,000
A’s 1,50,000
B’s 1,00,000
3,75,000
To Commission to A
20,000 50,000
Commission to A
= 3,75,000 – 75,000
3,00,000
=
Commission
3,00,000
10
100
x = 30,000
B will get commission after charging
= 3,75,000 – 75,000 – 30,000
Commission 2,70,000
8
108
x = 20,000

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.
Problem
4,50,000 + 42,000
By Net profit
A’s Current
80,000
30,000
3,00,000
4,92,000
4,92,000
To Salary ( B ) 42,000
A’s Current 2,00,000
B’s Current 1,00,000
4,92,000
To Commission to B
1,20,000
B will get commission after charging
= 4,92,000 – 42,000 – 1,20,000
Commission 3,30,000
10
110
x = 30,000

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
Problem

2,28,000
By Net profit
A
30,000
B 18,000 48,000
1,20,000
2,28,000
2,28,000
To B’ Salary
60,000
A 72,000
B 48,000
2,40,000
By Net profit
Profit and loss A/c
To net profit transferred to P/L App
To Manager commission ( 5% of 2,40,000) 12,000
2,28,000
,26
By Balance b/d 500,000 3,00,000
By Salary 60,000
To balance c/d 6,02,000 4,26,000
6,02,000 4,26,000
4,26,000
By P/L App A/c 72,000 48,000
6,02,000

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
Problem

72,000
By Net profit
X
To Salary
4,000
Y 96,00 13,600
25,800
72,000
72,000
32,600
X 12,900
Y 12,900
80,000
By Net profit
Profit and loss A/c
To net profit tran to P/L App
To Manager comm ( 5% of 80,000 8,000
72,000
X 17,000
Y 15,600

By Balance b/d 2,50,000 1,80,000
By Bank 20,000
To balance c/d 2,00,000 2,00,000
2,50,000 2,00,000
2,50,000 2,00,000
To Bank AC 50,000
Partners current A/c
By Salary 96,000
To Drawings 96,00
33,900 38,100
38,100
By P/L App A/c 12,900 12,900
33,900
4,000
To balance c/d 33,900 28,500
72,000
By Net profit
X
4,000
Y 96,00 13,600
25,800
72,000
72,000
To Salary
32,600
X 12,900
Y 12,900
X 17,000
Y 15,600

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)
Interest on partners Loan
XXXXX
By Gross profit
Profit and loss A/c
XXXX
To salary to employee XXX
Charge against
profit /revenue

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
Problem
4,30,000
By Net profit
Profit and loss A/c
To interest on A loan 5000
4,25,000
4,30,000
4,30,000
4,25,000
By Net profit
4,25,000
4,25,000
4,25,000
A 2,12,500
B 2,12,500
Particulars Dr. Amount Cr. Amount
Profit and loss App A/c
To A Capital A/c .
To B Capital A/c
2,12,500
4,25,000
2,12,500
Interest On partners loan will be 6%
=
Interest 2,00,000
6
100
x = 5,000
5
12
x

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
Problem
By Bank 500,000 3,00,000
By P/L App 2,12,500 2,12,500
To balance c/d 7,12,500 5,12,500
7,12,500 5,12,500
7,12,500 5,12,500
A loan A/c
By Bank 200,000
By interest on Loan 5,000
To balance c/d 2,05,000
2,05,000
2,05,000

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
Problem

3,46,000
By Net profit
Profit and loss A/c
To interest on A loan 9,000
3,37,000
3,46,000
3,46,000
3,37,000
By Net profit
A
25,000
B 15,000
40,000
A
1,800
B 1,200
3,000
2,16,000
3,40,000
3,40,000
To General Reserves 24,000
A 1,08,000
B 1,08,000
To Commission to B 60,000
=
Interest 1,50,000
6
100
x = 9,000
12
12
x
Reserve fund will 10% of divisible profits
= 3,40,000 – 40,000 – 60000
= 2,40,000
=
Reserves 2,40,000
10
100
x = 24,000

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.
Problem

114,800
By Net profit
X
7,500
Y 6,000
18,500 X
300
Y 300
900
1,15,700
To General Reserves
20,000
Z 300
Z 5,000
By Balance 1,50,000 1,20,000 1,00,000
By Balance 8,000 3,000
To balance 2,000
By Interest on cap 7,500 6,000 5,000
To Drawing
To interest Drawing
10,000 10,000 10,000
300 300 300
115,400
By Net profit
Profit and loss A/c
To interest on X loan 6,00
1,14,800
=
Interest 20,000
6
100
x = 6,00
6
12
x

114,800
By Net profit
X
7,500
Y 6,000
18,500 X
300
Y 300
900
77,200
1,15,700
1,15,700
To General Reserves
20,000
Z 300
Z 5,000
X 35,734
Y 25,733
Z 15,733
115,400
By Net profit
Profit and loss A/c
1,14,800
Particulars A B C
30,000
Distribution of profits
First Rs 60,000 in capital ratio
3:2:1
20,000 10,000
5734
Next Rs 17,200 equally 5733 5733
35734
Total (Divisible Profit 77,200 ) 25733 15733

114,800
By Net profit
X
7,500
Y 6,000
18,500 X
300
Y 300
900
77,200
1,15,700
1,15,700
To General Reserves
20,000
Z 300
Z 5,000
X 35,734
Y 25,733
Z 15,733
By Balance 1,50,000 1,20,000 1,00,000
To balance 1,50,000 1,20,000 1,00,000
By Balance 8,000 3,000
To balance 2,000
By Interest on cap
By P/L App
7,500 6,000 5,000
35,734 25,733 15,733
To Drawing
To interest Drawing
To balance c/d
10,000 10,000 10,000
300 300 300
40,934 24,433 8,433
51,234 34,733 20,733
51,234 34,733 20,733
1,50,000 1,20,000 1,00,000
1,50,000 1,20,000 1,00,000
115,400
By Net profit
Profit and loss A/c
1,14,800

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 amount is
withdrawn on equal interval
When equal/unequal
amount is withdrawn on
equal/unequal interval
Average Product Method Average Product Method
Product Method

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

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
Calculate interest on drawings
Date. Amount Period Interest @ 9%
February 1st
12,000
April 30th
6,000
June 30st
12,000
August 31st
12,000
October 1st
8,000
December 31st
7,000
11 1,32,000
Interest = 3,06,000 x 1
12
x 9 %
100
8 48,000
6 72,000
4 48,000
3 24,000
0 0
3,06,000
Total
Solution Product Method
= 2,295

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
Interest = 12,000 x 11
12
x 9 %
100
Solution Simple Method
= 990
12
x 9 %
100
= 360
12
x 9 %
100
= 405
12
x 9 %
100
= 360
12
100
Total
= 8,000 x 3
12
x 9 %
100
= 180
Interest
= 7,000 x 0
12
x 9 %
100
= 0
Interest
2,295
=

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.
When fixed amount is during the
year

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
Interest = Drawings x Period
12
x 10
100
= 40,000 x 6
12
x 10
100
= 2,000
 Note:- Interest on drawing will be charged for average period of 6 months
in the date of drawing is not given

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
Interest = Drawings x x 10
100
= 40,000 x x 10
100
= 4,000
 Note:- Interest on drawing will be charged irrespective of period because
rate is given 10% not 10 p.a.

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
When fixed amount is withdrawn
every month

Average period Time left after first drawing
=
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.
+ 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
11 month
= + 0 Month
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
= + Time left after last drawing
2
12 month
= + 1 Month
2
6.5 Months
=
12
x Rate
100
= 24,000 x 6.5
12
x 15
100
= 1,950

Calculate
2
11 month
= + 0 Month
2
5.5 Months
=
12
x Rate
100
= 24,000 x 5.5
12
x 15
100
= 1,650

Calculate
2
11.5 month
= + .5 Month
2
6 Months
=
12
x Rate
100
= 24,000 x 6
12
x 15
100
= 1,800

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
When fixed amount is withdrawn
every quarter

=
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
12 month
= + 3 Month
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
12 month
= + 3 Month
2
7.5 Months
=
12
x Rate
100
= 32,000 x 7.5
12
x 10
100
= 2,000

Calculate
2
9 month
= + 0 Month
2
4.5 Months
=
12
x Rate
100
= 32,000 x 4.5
12
x 10
100
= 1,200

Calculate
2
10.5 month
= +1.5 Month
2
6 Months
=
12
x Rate
100
= 32,000 x 6
12
x 10
100
= 1,600

Summary
Sr. Cases Average
period
1
2
3
4
5
6
7
8
6 Months
Amount withdrawn during the year and the date of drawing is
not given
Amount withdrawn at the beginning of every quarter. i.e. 1st
April , 1 July, 1st
October, 1st
January
Amount withdrawn at the end of every quarter.
i.e. 3oth June , 30th
September , 31st
December, 31st
March
Amount is withdrawn at the middle of each quarter.
i.e. 15th
May, 15th
August, 15th
Nov , 15th
Feb.
Fixed amount withdrawn at the beginning of every month i.e. 1st
April, 1st
May, 1st
March.....
Fixed amount withdrawn at the end of the every month
i.e. 30st
April,31st
May ,31st
March... .
Fixed amount withdrawn at the middle of every month.
i.e. 15th April, 15th
May, 15th June..15th
Marcg
Amount withdrawn during the year and interest is charged
irrespective of period (word “p.a.” is missing. N.A
6.5 Months
5.5 Months
6 Months
7.5 Months
4.5 Months
6 Months

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
2
3.5 Months
=
12
x Rate
100
= 36,000 x 3.5
12 x
10
100
= 1,050

Calculate
2006
2
9 month
= + 1 Month
2
5 Months
=
12
x Rate
100
= 72,000 x 5
12 x
10
100
= 3,000

Calculate
2006
2
8.5 month
= + .5 Month
2
4.5 Months
=
12
x Rate
100
= 72,000 x 4.5
12 x
10
100
= 2,700

Special Cases of
interest on
Capital

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
If profit before interest is
equal to or more than the
interest on capital
If profit before interest
is less than the interest
on capital
Interest on capital will not be
allowed
Full interest will he allowed
Interest will be restricted to the
amount of profit. Profit will be divided
in the ratio 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 3rd
When the
partnership
agreement provides
for interest on
capital as a charge
Full interest will he allowed whether there is
profit or loss

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
Problem
50,000
By Net profit
50,000
50,000
50,000
A’s 3/5th 30,000
B’s 2/5th 20,000
 :-Partnership deed is salient interest on capital will not be provided

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.
Problem
50,000
To Net Loss
Profit and loss A/c
By loss transferred to
50,000
50,000
50,000
A’s 3/5th 30,000
B’s 2/5th 20,000

5. If the partnership deed allowed interest on capital @ 8% p.a even if
Problem
50,000
By Net profit
26,000
50,000
50,000
A’s 3/5th 15,600
B’s 2/5th
10,400
A’s
16,000
B’s 8,000
24,000

profits for the year are Rs 15,000.
5. If the partnership deed allowed interest on capital @ 8% p.a. even if
Problem
15,000
By Net profit
15,000
15,000
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)

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
Problem
15,000
By Net profit
Profit and loss A/c
A’s
16,000
B’s 8,000
24,000
24,000
24,000
9,000
A’s 3/5th 5,400
B’s 2/5th 3,600

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
Problem
15,000
By Net profit
Profit and loss A/c
A’s
16,000
B’s 8,000
24,000
24,000
24,000
9,000
A’s 3/5th 5,400
B’s 2/5th 3,600

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.
Problem
12,600
By Net profit
Profit and loss A/c
Arun current A/c
72,00
96,00 16,800
Arora current A/c
42,00
By Profit and los App
16,800 16,800
By Loss transferred to
3750
4,200
4,200
Arun current A/c 2,344
Arora current A/c 1,406
To profit and loss A/c 4,200
Arun current A/c
150
Arora current A/c 300 450

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
Problem
70,000
By Net profit
70,000
70,000
To Interest On A’s Capital ( 4/7th
of 70,000 40,000
30,000
To salary to B (3/7th
of 70,000)
Interest on A’s capital 12,00,000 10
100
x = 1,20,000
Salary of B 7,500 X 12 = 90,000
2,10,000
Available profit is = 70,000
Appropriations (salary + interest on capital)
Profit will be distributed in the ratio
of appropriations
Interest on capital :
12,00,000 90,000
:
4 3
:
Salary

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
Adjustment in the closed accounts

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

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

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

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.
Problem
Particulars A B C D Total
5,000
Table Showing Adjustment
Interest in capital (Cr.) 3,000 2,500 1,500 12,000
3,000
Division of Rs 12,000
loss (Dr.) in equal ratio
3,000 3,000 3,000 12,000
Cr.2000
Difference Dr. 500 Dr.1,500 -
-
C Capital A/c Dr.
D Capital A/c Dr
To A Capital A/c
Adjustment entry regarding interest on capital
500
15,00
2,000
Adjustment entry
Expense to the firm
Interest on capital is omitted

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
Problem
Particulars A B C Total
30,000
Interest in capital (Cr.)
For 3 years
24,000 21,000 75,000
25,000
Division of Rs 75,000
loss (Dr.) in equal ratio
25,000 25,000 75,000
Cr.5000
Difference Dr. 4000 -
Dr. 1000
B Current A/c Dr.
C Current A/c Dr
To A Current A/c
1,000
4,000
5,000
Expense to the firm
Interest on capital is omitted and capital is fixed

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.
Problem
Particulars Ram Shyam Mohan Total
3,000
Interest in capital (Cr.)
Difference ( 10% - 9%)
1,000 2,000 6,000
24,00
Division of Rs 6000
loss (Dr.) in 2:1:2
1,200 24,00 6,000
Cr.600
Difference Dr. 400 -
Dr. 200
Shyam Current A/c Dr.
Mohan Current A/c Dr
To Ram Current A/c
200
400
600
Less interest on capital is 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.
Problem
30,000
Interest in capital (Dr.)
Difference ( 12% - 10%)
60,000 120,000 2,10,000
42,000
Division of Rs 2,10,000
Profit (Cr.) in 2:3:5
63,000 1,05,000 2,10,000
Cr.12,000
Difference Dr. 15,000
-
Cr. 3000
Particulars Dr Amount Cr. Amount
C Current A/c Dr.
To A’s Current A/c
To B’s Current A/c
15,000
12,000
3,000
Income to the firm
Interest on capital is excessive charged

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.
Problem
6,000
Interest in capital (Dr.) 48,00 3,600 14,400
12,000 96,00 72,00 28,800
Cr.2400
Difference Dr. 480 Dr. 1920
-
6,000
Total amount receivable (Dr.
72,00
Profit for the First year.(Cr) 3:2:1 48,00 2,400 14,400
14,400 9120 5280 28,800
72,00
Profit for the 2nd year .(Cr) 5:3:2 4320 2,880 14,400
Total Profit payable (Cr.
Interest on capital is allowed without any provision

6,000
12,000 96,00 72,00 28,800
Cr.2400
Difference Dr. 480 Dr. 1920
-
6,000
Total amount receivable (Dr.
72,00
Profit for the First year.(Cr) 3:2:1 48,00 2,400 14,400
14,400 9120 5280 28,800
72,00
Profit for the 2nd year .(Cr) 5:3:2 4320 2,880 14,400
Total Profit payable (Cr.
B’s Current A/c Dr.
C’s Current A/c Dr
To A’s Current A/c
480
1920
2400

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.
Problem
Particulars X Y Z Total
250
Interest in Drawings 180 100 530
265
Division of Rs 530 in 3:2:1. 177 88 530
Cr.15
Difference Dr. 3 Dr. 12 -
(Dr.)
(Cr.)
Y Capital Dr.
Z Capital A/c Dr
To X Capital A/c
3
12
15
Interest on drawing 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.
Problem
Particulars Elvin Monu Ahmed
40,000 20,000
added in the ratio of 3:2:1)
40,000
35,000
9,000
Opening capital ( 1-1- 2001 40,000
15,000
29,000
80,000 60,000
60,000
When closing capital is given and interest is omitted

Particulars Elvin Monu Ahmed Total
Interest on Capital
-360 -200 -1060
Dr. 570
Difference Cr.560 -
Cr.10
Less:- interest on drawing
1,450 5,200
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
Elvin Capital A/c Dr.
To Monu’s Capital A/c
To Ahmed’s Capital A/c
Adjustment entry regarding omissions.
570
10
560
2,000 1,750
-500
Particulars Elvin Monu Ahmed
35,000
Opening capital ( 1-1- 2001 40,000 29,000

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
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
Particulars A B
12,000
28,000
20,000
60,000 20,000
18,000
Problem When closing capital is given and interest is omitted

Particulars A B Total
Interest on Capital
12,000
Cr 5,280
Difference Dr 5,280
Salary to A
9,600
Total amount payable 18,240 3,360 21,600
Division of loss (3:2) 12,960 8,640
B’s Capital A/c Dr.
To A’s Capital A/c
5,280
5,280
6240 3,360
12,000
Particulars A B
28,000

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.
Problem
Interest on Capital
6000 7000 13,000
Dr. 5000
Difference Cr.3000 -
Cr.2000
Salary
2,000 11,000
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
5,000 4,000
Comprehensive( salary, interest on capital)

Interest on Capital
6000 7000 13,000
Dr. 5000
Difference
Cr.3000 -
Cr.2000
Salary
2,000 11,000
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
A’s Capital A/c Dr.
To B’s Capital A/c
To C’s Capital A/c
Dr. 5000
2000
3000
5,000 4,000

When profit is divided in
wrong ratio and certain items
are unrecorded.

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.
Problem When profit sharing ratio is changed
Particulars X Y Z Total
Total profits of the 3 years
distributed in 2:2:1 (Dr)
Dr. 9854
Difference Cr.19,704 -
Dr. 9854
29,562 1,47,810
Now division of profits in
equal ratio
49270 49270 49270 1,47,810
X’s Capital A/c Dr.
Y’s Capital A/c
To Z’s Capital A/c
9854
9854
19,704
59,124 59,124

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.
Problem
Particulars Ravi Mohan Total
1,20,000
Salary to partners
84,000
1,32,000
98,000
Division of remaining profits
( 5,04,000 – 2,04,000-
1,32000 = 1,68,000
70,000 1,68,000
Cr.38,000
Difference Dr. 38,000
Interest on Capital (Cr.) 2,04,000
Net amount which should
have been received (Cr.)
2,90,000 2,14,000 5,04,000
Less:- Wrongly
Distributed Equally (Dr.)
2,52,000 2,52,000 5,04,000
72,000 60,000
When profit sharing ratio is changed and items are omitted
= 5,04,000 – (2,04,000 + 1,32,000
= 1,68,000 ( 7: 5)

Particulars Ravi Mohan Total
1,20,000
Salary to partners
84,000
1,32,000
98,000
Division of remaining profits
( 5,04,000 – 2,04,000-
1,32000 = 1,68,000
70,000 1,68,000
Cr.38,000
Difference -
Dr. 38,000
Interest on Capital (Cr.) 2,04,000
2,90,000 2,14,000 5,04,000
Less:- wrongly distributed
equally (Dr.)
2,52,000 2,52,000 5,04,000
Mohan’s Current A/c Dr.
To Ravi Current A/c
38,000
38,000
72,000 60,000

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.
Problem
Particulars P Q R Total
1,500
Remuneration to R (Cr.)
750 750 3,000
4,800
Division of remaining
profits ( 18,000 – 6000) 4,800 2,400 12,000
Cr.300
Difference Cr.150 -
Dr. 450
Interest on Capital (Cr.)
3,000 3,000
6,300 5,550 6,150 18,000
equally (Dr.)
6,000 6,000 6,000 18,000
= 18,000 – (3,000 + 3,000)
= 12,000 ( 2:2:1)

Particulars P Q R Total
1,500
Remuneration to R (Cr.)
750 750 3,000
4,800
profits ( 18,000 – 6000) 4,800 2,400 12,000
Cr.300
Difference Cr.150 -
Dr. 450
3,000 3,000
6,300 5,550 6,150 18,000
equally (Dr.)
6,000 6,000 6,000 18,000
Q Capital A/c Dr.
To P’s Capital A/c
To R’s Capital A/c
450
300
150

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.
Problem

1,500
Commission to C
1,000 500
1,350
7,860
profits ( 30,000 – 10350
( 2:2:1)
7,860 3,930 19,650
Dr.5640
Difference Cr.780 -
Cr. 4860
1,350
3,000
9,360 14,860 5,780 30,000
3:2:1 (Dr.)
15,000 10,000 5,000 30,000
5,640
4860
780
Salary to B ( 500 X 12) 6,000 6,000
= 30,000 – (3,000 + 1350 + 6000)
= 19,650 ( 2:2:1)

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.
Problem

1,500
Commission to B
1,500
4,500
Salary to partner A and B
4,500
3,000
90,000 – 3000 – 4500 = 82,500
=
A share 82,500
3
8
x = 30938
Remaining profits of A after allowing salary and commission
Less than guaranteed amount of Rs 35000
Profit guaranteed to A 35,000 35,000

1,500
Commission to B
1,500
4,500
4,500
3,000
Profit guaranteed to A 35,000
Remaining profit of B and C 28,500 19,000
36,500 34,500 19,000 90,000
35,000
47,500
3:2:1 (Dr.)
45,000 30,000 15,000 90,000
Dr.8500
Cr. 4500
Net credit (Cr.)
90,000 – 3000 – 4500 - 35000 = 47,500
=
B share 47,500
3
5
x = 28500
Remaining profits of B and C
=
C share 47,500
2
5
x = 19,000

1,500
Commission to B
1,500
4,500
4,500
3,000
Profit guaranteed to A 35,000
Remaining profit of B and C 28,500 19,000
36,500 34,500 19,000 90,000
35,000
47,500
3:2:1 (Dr.)
45,000 30,000 15,000 90,000
Dr.8500
Cr. 4500
Net credit (Cr.)
8,500
4,500
4,000

Guarantee of
minimum profit to
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.
Guarantee of Profit to a Partner

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
Problem
=
Ram share 40,000
5
10
x = 20,000
=
Raj share 40,000
3
10
x = 15,000
=
George share 40,000
2
10
x = 8,000
Minimum guarantee = 10,000
Less divisible profit = 8,000
Deficiency = 2,000
•Guarantee to one partner by (others) the firm,

40,000
By Net profit
Ram ( 20,000 – 1250)
10,000
To Profit transferred to capital A/c
George ( 8,000 + 1250 + 750)
40,000 40,000
Raj ( 12,000 – 750)
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
Problem
=
Ram share 2,000
5
8
x = 1,250
=
Raj share 2000
3
8
x = 750
Deficiency of Rs 2000 will be bear by ram and raj in their profit sharing
ratio i.e. 5:3
•Guarantee to one partner by (others) the firm,
18,750
11,250

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.
Problem
By loss transferred
70,000
To Profit & loss A/c (loss)
Anil’s Capital
2,78,000 2,78,000
To Ravinder’s capital A/c
(Minimum guaranteed profits)
2,08,000
Sunil’s Capital
2,78,000 2
3
x
2,78,000 1
3
x
1,85,333
92,667
2,08,000
By Loss transferred to
P/L App
Profit and loss A/c
To Net loss
To interest on Anil loan
2,00,000
8,000

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
Problem

When manager is
treated as a partner

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
Problem •Guarantee to one partner by others partners in equal ratio
=
A’s share 40,000
5
10
x = 20,000
=
B’s share 40,000
4
10
x = 16,000
=
C’s share 40,000
1
10
x = 4,000
Minimum guarantee = 5,000
Less divisible profit = 4,000
Deficiency = 1,000

40,000
By Net profit
A’s ( 20,000 – 500)
1,000
C’s ( 4,000 + 500 + 500)
40,000 40,000
B’s ( 16,000 – 500)
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
Problem
=
A’s share 1,000
1
2
x = 500
=
B’s share 1000
1
2
x = 500
Deficiency of Rs 1000 will be bear by A and B in their profit sharing
ratio i.e. 1:1
•Guarantee to one partner by others partners in equal ratio
19,500
15,500

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
Problem

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
Less:- Manager commission = -18,000
Profit after manager’s Salary after Commission
Net divisible profits
= 1,80,000
1,98,000
X
10
110
=
A share 1,80,000
3
5
x = 1,08,000
=
B share 1,80,000
2
5
x = 72,000

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
=
C share as a partner 2,25,000
1
4
x
= 56,250
C share as a manager = 45,000
Excess of C’s share as
a partner
= 11,250
Difference of Rs 11,250 will
be borne by A
2,2,5,000
By Net profit
A’s
56,250
To C’s
2,2,5,000 2,2,5,000
To B’s 72,000
96,750
1,80,000 3
5
x
1,80,000 2
5
x
2,2,5,000 1
4
x
= 1.08,000
Less:- Due to C -11,250
=

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.
Problem

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
Less:- Manager commission = -8,000
Profit after manager’s Salary after Commission = 1,60,000
1,68,000
X
5
105
=
A share 1,60,000
3
4
x = 1,20,000
=
B share 1,60,000
1
4
x = 40,000
Net divisible profits

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
=
C share as a partner 2,00,000
1
4
x
= 50,000
C share as a manager = 40,000
Excess of C’s share as
a partner
= 10,000
Difference of Rs 10,000 will
be borne by A and B in 3:2
2,00,000
By Net profit
A’s
50,000
To C’s
2,00,000 2,00,000
To B’s 40,000
1,14,000
1,60,000 3
4
x
1,60,000 1
4
x
2,00,000 1
4
x
= 1,20,000
Less:- Due to C -6,000
Less:- Due to C -4,000 36,000

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
Record the necessary journal entries to give the effect to the above.
Year Profit/loss Amount
1998 Profit 59,000
1999 Profit 62,000
2000 Loss 4,000
2001 Profit 78,000
Problem

Particulars Amount
•Interest on his loan Rs 20,000 @ 9% p.a. (last 4 years)
•Salary for the past 4 years
Total Amount
Total amount paid to Chandan as a manager
36000
7200
43,200
Particulars Amount
•Profit for the year 1998
•Loss for the year 2000
Total profit of the firm
Total amount paid to Chandan as a partner
62,000
59,000
2,38200
-4000
78,000
43,200
Add:- total amount paid to Chandra as a manager
48,00
Less:-Interest on Capital Rs 20,000 @ 6% p.a. (last 4 years)
Net profit of the firm 2,33400
=
Chandan share in profits 2,33400
1
6
x = 38,900
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.
To Chandan’s Capital A/c
20,000
20,0000
Kothari’s Capital A/c Dr.
Pradeep’s Capital A/c
To Chandan’s Capital A/c
300
200
500

Class 12 Acc Ch 1. FUND-PARTNERSHIP.pptx

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