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**CBSE accountancy class 12 chapter Accounting for Partnership : Basic Concepts – Distribution of Profits – Numerical Questions Solutions**. You can find the questions/answers/solutions for the**chapter 2**of**CBSE class 12 accountancy**in this page. So is the case if you are looking for**CBSE class 12 Commerce**related topic**Accounting for Partnership : Basic Concepts – Distribution of Profits – Numerical Questions Solutions**. If you’re looking for theoretical questions related to Test Your Understanding, Do It Yourself, Short Answers or Long Answers or Fixed and Fluctuating Capitals Solutions or Guarantee of Profit to the Partners Solutions or Past Adjustments Solutions, you can find them at●

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Accounting for Partnership : Basic Concepts – Distribution of Profits Solutions

3. Harshad and Dhiman are in partnership since April 01, 2016. No Partnership agreement was made. They contributed ₹ 4,00,000 and 1,00,000 respectively as capital. In addition, Harshad advanced an amount of ₹ 1,00,000 to the firm, on October 01, 2016. Due to long illness, Harshad could not participate in business activities from August 1, to September 30, 2016. The profits for the year ended March 31, 2017 amounted to ₹ 1,80,000.

Dispute has arisen between Harshad and Dhiman.

Harshad Claims:

(i)

he should be given interest @ 10% per annum on capital and loan;

(ii)

Profit should be distributed in proportion of capital;

Dhiman Claims:

(i)

Profits should be distributed equally;

(ii)

He should be allowed ₹ 2,000 p.m. as remuneration for the period he managed the business, in the absence of Harshad;

(iii)

Interest on Capital and loan should be allowed @ 6% p.a.

You are required to settle the dispute between Harshad and Dhiman. Also prepare Profit and Loss Appropriation Account.

Considering the Indian Partnership Act, 1932, the following will be the final verdict regarding Harshad and Dhiman’s claims

Validity of Harshad’s claims:

(i)

Invalid claim. If there is no agreement regarding the interest on partners’ capital, no interest will be allowed on capital.

(ii)

Invalid Claim. If there is no agreement regarding the proportion in which the profit should be distributed, the profit should be distributed equally, irrespective of the amount of capital contributed by the partners.

Validity of Dhiman’s claims:

(i)

Valid Claim. If there is no agreement regarding the proportion in which the profit should be distributed, the profit should be distributed equally, irrespective of the amount of capital contributed by the partners.

(ii)

Invalid Claim. If there is no agreement regarding the salary to be paid to the partners, no salary should be paid.

(iii)

Partially Valid. If there is no agreement regarding the rate of interest to be paid on capital, no interest should be paid. However, if there is no agreement regarding the rate of interest to be paid on loan, then the interest should be paid @ 6% p.a.

Profit and Loss Appropriation Account

Dr.

Cr.

Particulars

Amount

₹

₹

Particulars

Amount

₹

₹

To Interest on Partner’s Loan

3,000

By Profit and Loss A/c

1,80,000

Profit Transferred

To Harshad’s Capital A/c

88,500

To Dhiman’s Capital A/c

88,500

1,77,000

1,80,000

1,80,000

Working Notes:

Interest on Loan:

Loan Amount

= ₹ 1,00,000

Interest Rate

= 6%

Loan Duration

= 6 months

Interest on Loan

{= ₹~1,00,000 × \dfrac{6}{100} × \dfrac{6}{12}}

= ₹ 3,000

Profit:

Net Profit

₹ 1,80,000

Interest on Loan

(₹ 3,000)

₹ 1,77,000

Profit sharing of each partner

{= \dfrac{₹~1,77,000}{2}}

= ₹ 88,000

4. Aakriti and Bindu entered into partnership for making garment on April 01, 2016 without any Partnership agreement. They introduced Capitals of ₹ 5,00,000 and ₹ 3,00,000 respectively on October 01, 2016. Aakriti Advanced. ₹ 20,000 by way of loan to the firm without any agreement as to interest. Profit and Loss account for the year ended March 31 2017 showed profit of ₹ 43,000. Partners could not agree upon the question of interest and the basis of division of profit. You are required to divide the profits between them by preparing Profit and Loss Appropriation Account. Also give reasons in Support of your answer.

According to Indian Partnership Act, 1932, nn the absence of partnership agreement between partners, the following rules apply:

●

Interest on Capital is not allowed.

●

Interest on Loan should be @ 6% p.a.

●

Profits should be shared equally among the partners.

Profit and Loss Appropriation Account

Dr.

Cr.

Particulars

Amount

₹

₹

Particulars

Amount

₹

₹

To Interest on Partner’s Loan

600

By Profit and Loss A/c

43,000

Profit Transferred

To Akriti’s Capital A/c

21,200

To Bindu’s Capital A/c

21,200

42,400

43,000

43,000

Working Notes:

Interest on Loan

Loan Amount

= ₹ 20,000

Interest Rate

= 6%

Loan Duration

= 6 months

Interest on Loan

{= ₹~20,000 × \dfrac{6}{100} × \dfrac{6}{12}}

= ₹ 600

Profit

Net Profit

₹ 43,000

Interest on Loan

(₹ 600)

₹ 42,400

Profit sharing of each partner

{= \dfrac{₹~42,400}{2}}

= ₹ 21,200

5. Rakhi and Shikha are partners in a firm, with capitals of ₹ 2,00,000 and ₹ 3,00,000 respectively. The profit of the firm, for the year ended 2016-17 is ₹ 23,200. As per the Partnership agreement, they share the profit in their capital ratio, after allowing a salary of ₹ 5,000 per month to Shikha and interest on Partner’s capital at the rate of 10% p.a. During the year Rakhi withdrew ₹ 7,000 and Shikha ₹ 10,000 for their personal use. As per partnership deed, salary and interest on capital appropriation treated as charge on profit. You are required to prepare Profit and Loss Appropriation Account and Partner’s Capital Accounts.

Note that, in this case, it is specified that in the partnership deed, it is agreed to treat salary and interest on capital appropriation as charge on profit.

Profit and Loss Appropriation Account

Dr.

Cr.

Particulars

Amount

₹

₹

Particulars

Amount

₹

₹

To Salary to Partner A/c

By Profit and Loss A/c

23,200

Shikha

60,000

Loss Transferred

To Interest on Capital A/c

By Rakhi’s Capital A/c

34,700

Rakhi

20,000

By Shikha’s Capital A/c

52,080

86,800

Shikha

30,000

50,000

1,10,000

1,10,000

Partners’ Capital Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

₹

Rakhi

₹

Rakhi

Amount

₹

Shikha

₹

Shikha

Date

Particulars

J.F.

Amount

₹

Rakhi

₹

Rakhi

Amount

₹

Shikha

₹

Shikha

To Drawings A/c

7,000

10,000

By Balance b/d

2,00,000

3,00,000

To Profit and Loss

34,720

52,080

By Salary to Partner A/c

–

60,000

Appropriation A/c

By Interest on Capital A/c

20,000

30,000

To Balance c/d

1,78,280

3,27,920

2,20,000

3,90,000

2,20,000

3,90,000

Working Notes:

Salary:

Shikha’s monthly salary

= ₹ 5,000

Shikha’s annual salary

= ₹ 5,000 × 12

= ₹ 60,000

Interest on Capital:

Interest rate on capital

= 10%

Rakhi’s Capital

= ₹ 2,00,000

Interest on Rakhi’s capital

{= ₹~2,00,000 × \dfrac{10}{100}}

= ₹ 20,000

Shikha’s Capital

= ₹ 3,00,000

Interest on Shikha’s capital

{= ₹~3,00,000 × \dfrac{10}{100}}

= ₹ 30,000

Total Interest on Capital

= ₹ 50,000

Share of Profit/Loss

Net Profit

₹ 23,200

Salary

(₹ 60,000)

Interest on Capital

(₹ 50,000)

Loss

(₹ 86,800)

Profit/Loss sharing ratio

= 2,00,000:3,00,000

= 2:3

Rakhi’s share of loss

{= ₹~86,800 × \dfrac{2}{5}}

= ₹ 34,720

Shikha’s share of loss

{= ₹~86,800 × \dfrac{3}{5}}

= ₹ 52,080

6. Lokesh and Azad are partners sharing profits in the ratio 3:2, with capitals of ₹ 50,000 and 30,000, respectively. Interest on capital is agreed to be paid @ 6% p.a. Azad is allowed a salary of ₹ 2,500 p.a. During 2016, the profits prior to the calculation of interest on capital but after charging Azad’s salary amounted to ₹ 12,500. A provision of 5% of profits is to be made in respect of manager’s commission. Prepare partner’s capital accounts and profit and loss Appropriation Account.

Note that the net profit provided is after charging Azad’s salary. So, to get the actual net profit we need to add Azad’s salary to the net profit amount provided.

Profit and Loss Appropriation Account

Particulars

Amount

₹

₹

Particulars

Amount

₹

₹

To Interest on Capital A/c

By Profit and Loss A/c

15,000

Lokesh

3,000

(12,500 + 2,500)

Azad

1,800

4,800

To Salary to Partner A/c

Azad

2,500

To Manager’s Commission A/c

750

Profit Transferred

To Lokesh’s Capital A/c

4,170

To Azad’s Capital A/c

2,780

6,950

15,000

15,000

Partners’ Capital A/c

Date

Particulars

J.F.

Amount

₹

Lokesh

₹

Lokesh

Amount

₹

Azad

₹

Azad

Date

Particulars

J.F.

Amount

₹

Lokesh

₹

Lokesh

Amount

₹

Azad

₹

Azad

To Balance c/d

57,170

37,080

By Balance b/d

50,000

30,000

By Interest on Capital A/c

3,000

1,800

By Salary to Partner A/c

–

2,500

By Profit and Loss

Appropriation A/c

Appropriation A/c

4,170

2,780

57,170

37,080

57,170

37,080

Working Notes:

Interest on Capital

Interest on Capital

= 6% p.a.

Lokesh’s Capital

= ₹ 50,000

Interest on Lokesh’s capital

{= ₹~50,000 × \dfrac{6}{100}}

= ₹ 3,000

Azad’s Capital

= ₹ 30,000

Interest on Azad’s capital

{= ₹~30,000 × \dfrac{6}{100}}

= ₹ 1,800

Total Interest on Capital

= ₹ 3,000 + ₹ 1,800

= ₹ 4,800

Profit

Profit after charging Salary

₹ 12,500

Salary

₹ 2,500

₹ 15,000

Manager’s commission

{= ₹~15,000 × \dfrac{5}{100}}

= ₹ 750

Profit available for sharing

Net Profit

₹ 15,000

Interest on Capital

(₹ 4,800)

Salaries

(₹ 2,500)

Commission

(₹ 750)

₹ 6,950

Lokesh’s share

{= ₹~6,950 × \dfrac{3}{5}}

= ₹ 4,170

Azad’s share

{= ₹~6,950 × \dfrac{2}{5}}

= ₹ 2,780

7. The partnership agreement between Maneesh and Girish provides that:

(i)

Profits will be shared equally;

(ii)

Maneesh will be allowed a salary of ₹ 400 p.m;

(iii)

Girish who manages the sales department will be allowed a commission equal to 10% of the net profits,after allowing Maneesh’s salary;

(iv)

7% p.a. interest will be allowed on partner’s fixed capital;

(v)

5% p.a. interest will be charged on partner’s annual drawings;

(vi)

The fixed capitals of Maneesh and Girish are ₹ 1,00,000 and ₹ 80,000, respectively. Their annual drawings were ₹ 16,000 and 14,000, respectively. The net profit for the year ending March 31, 2015 amounted to ₹ 40,000;

Prepare firm’s Profit and Loss Appropriation Account.

Profit and Loss Appropriation Account

Particulars

Amount

₹

₹

Particulars

Amount

₹

₹

To Salary to Partner A/c

By Profit and Loss A/c

40,000

Maneesh

4,800

By Interest on Drawings A/c

To Commission to Partner A/c

Maneesh

800

Girish

3,520

Girish

700

1,500

To Interest on Capital A/c

Maneesh

7,000

Girish

5,600

12,600

Profit Transferred

To Maneesh’s Current A/c

10,290

To Girish’s Current A/c

10,290

20,580

41,500

41,500

Working Notes:

Salary

Maneesh’s monthly Salary

= ₹ 400

Maneesh’s annual Salary

= ₹ 400 × 12

= ₹ 4,800

Commission

Net Profit

= ₹ 40,000

Profit after allowing Maneesh’s Salary

= ₹ 40,000 – ₹ 4,800

= ₹ 35,200

Girish’s Commission

{= ₹~35,200 × \dfrac{10}{100}}

= ₹ 3,520

Interest on Capital

Maneesh’s Capital

= ₹ 1,00,000

Interest on Maneesh’s capital

{= ₹~1,00,000 × \dfrac{7}{100}}

= ₹ 7,000

Girish’s Capital

= ₹ 80,000

Interest on Girish’s capital

{= ₹~80,000 × \dfrac{7}{100}}

= ₹ 5,600

Total Interest on Capital

= ₹ 7,000 + ₹ 5,600

= ₹ 12,600

Interest on Drawings

Maneesh’s Drawings

= ₹ 16,000

Interest on Maneesh’s Drawings

{= ₹~16,000 × \dfrac{5}{100}}

= ₹ 800

Girish’s Drawings

= ₹ 14,000

Interest on Girish’s Drawings

{= ₹~14,000 × \dfrac{5}{100}}

= ₹ 700

Total Interest on Drawings

= ₹ 800 + ₹ 700

= ₹ 1,500

Profit Sharing

Net Profit

₹ 40,000

Maneesh’s Salary

(₹ 4,800)

Girish’s Commission

(₹ 3,520)

Interest on Capital

(₹ 12,600)

Interest on Drawings

₹ 1,500

₹ 20,580

Profit sharing ratio

= 1:1

Maneesh’s share of profit

{= \dfrac{₹~20,580}{2}}

= ₹ 10,290

Girish’s share of profit

{= \dfrac{₹~20,580}{2}}

= ₹ 10,290

8. Ram, Raj and George are partners sharing profits in the ratio 5 : 3 : 2. According to the partnership agreement George is to get a minimum amount of ₹ 10,000 as his share of profits every year. The net profit for the year 2013 amounted to ₹ 40,000. Prepare the Profit and Loss Appropriation Account.

George should be guaranteed a minimum of ₹ 10,000. So, if George’s proift is less than ₹ 10,000, it should first be adjusted to make it ₹ 10,000. Then the rest of the profit should be shared among Ram and Raj in the ratio 5:3.

Profit and Loss Appropriation Account

Particulars

Amount

₹

₹

Particulars

Amount

₹

₹

Profit Transferred

By Profit and Loss A/c

40,000

To Ram’s Capital A/c

18,750

To Raj’s Capital A/c

11,250

To George’s Capital A/c

10,000

40,000

40,000

Working Notes:

Share of profit

Profit Earned

= ₹ 40,000

George’s profit as per ratio

{= ₹~40,000 × \dfrac{2}{10}}

= ₹ 8,000

Adjustment to George’s share

(To make it ₹ 10,000)

(To make it ₹ 10,000)

= ₹ 2,000

George’s profit

(After adjustment)

(After adjustment)

= ₹ 10,000

Remaining Profit

= ₹ 30,000

Ram’s share

{= ₹~30,000 × \dfrac{5}{8}}

= ₹ 18,750

Ram’s share

{= ₹~30,000 × \dfrac{3}{8}}

= ₹ 11,250

9. Amann, Babita and Suresh are partners in a firm. Their profit sharing ratio is 2:2:1. Suresh is guaranteed an amount of ₹ 10,000 as share of profit, every year. Any deficiency on that account shall be met by Babita. The profits for two years ending March 31, 2016 and March 31, 2017 were ₹ 40,000 and ₹ 60,000, respectively. Prepare the Profit and Loss Appropriation Account for the two years.

As Suresh is guaranteed a profit of ₹ 10,000, the deficiency in profit should be adjusted from Babita’s account.

Note: In 2017, no adjustment is needed to Suresh’s profit as it is more than ₹ 10,000

Profit and Loss Appropriation A/c

for the year ending March 31, 2016

for the year ending March 31, 2016

Dr.

Cr.

Particulars

Amount

₹

₹

Particulars

Amount

₹

₹

Profit Transferred

By Profit and Loss A/c

40,000

To Amann’s Capital A/c

16,000

To Babita’s Capital A/c

14,000

To Suresh’s Capital A/c

10,000

40,000

40,000

Profit and Loss Appropriation A/c

for the year ending March 31, 2017

for the year ending March 31, 2017

Dr.

Cr.

Particulars

Amount

₹

₹

Particulars

Amount

₹

₹

Profit Transferred

By Profit and Loss A/c

60,000

To Amann’s Capital A/c

24,000

To Babita’s Capital A/c

24,000

To Suresh’s Capital A/c

12,000

60,000

60,000

Working Notes:

Profits Before Adjustment (for 2016)

Profit available (for sharing)

= ₹ 40,000

Amann

{= ₹~40,000 × \dfrac{2}{5}}

= ₹ 16,000

Babita

{= ₹~40,000 × \dfrac{2}{5}}

= ₹ 16,000

Suresh

{= ₹~40,000 × \dfrac{2}{5}}

= ₹ 8,000

Deficiency in Suresh’s Profit

= ₹ 10,000 – ₹ 8,000

= ₹ 2,000

Profits After Adjustment (for 2016)

Suresh

= ₹ 8,000 + ₹ 2,000

= ₹ 10,000

Babita

= ₹ 16,000 – ₹ 2,000

= ₹ 14,000

Profits for 2017

Profit available for sharing

= ₹ 60,000

Amann

{= ₹~60,000 × \dfrac{2}{5}}

= ₹ 24,000

Babita

{= ₹~60,000 × \dfrac{2}{5}}

= ₹ 24,000

Suresh

{= ₹~60,000 × \dfrac{2}{5}}

= ₹ 12,000

10. Simmi and Sonu are partners in a firm, sharing profits and losses in the ratio of 3:1. The profit and loss account of the firm for the year ending March 31, 2017 shows a net profit of Rs. 1,50,000. Prepare the Profit and Loss Appropriation Account and partners current account by taking into consideration the following information:

(i)

Partners capital on April 1, 2016;

Simmi, ₹ 30,000; Sonu, ₹ 60,000;

Simmi, ₹ 30,000; Sonu, ₹ 60,000;

(ii)

Current accounts balances on April 1, 2016;

Simmi, ₹ 30,000 (cr.); Sonu, ₹ 15,000 (cr.);

Simmi, ₹ 30,000 (cr.); Sonu, ₹ 15,000 (cr.);

(iii)

Partners drawings during the year amounted to

Simmi, ₹ 20,000; Sonu, ₹ 15,000;

Simmi, ₹ 20,000; Sonu, ₹ 15,000;

(iv)

Interest on capital was allowed @ 5% p.a.;

(v)

Interest on drawing was to be charged @ 6% p.a. at an average of six months;

(vi)

Partners’ salaries : Simmi ₹ 12,000 and Sonu ₹ 9,000.

Profit and Loss Appropriation Account

Particulars

Amount

₹

₹

Particulars

Amount

₹

₹

To Interest on Capital A/c

By Profit and Loss A/c

1,50,000

Simmi

1,500

By Interest on Drawings A/c

Sonu

3,000

4,500

Simmi

600

To Salary to Partner A/c

Sonu

450

1,050

Simmi

12,000

Sonu

9,000

21,000

Profit Transferred

To Simmi’s Current A/c

94,162

To Sonu’s Current A/c

31,388

125,550

1,51,050

1,51,050

Partners’ Capital A/c

Dr.

Cr.

Date

Particulars

J.F.

Amount

₹

Simmi

₹

Simmi

Amount

₹

Sonu

₹

Sonu

Date

Particulars

J.F.

Amount

₹

Simmi

₹

Simmi

Amount

₹

Sonu

₹

Sonu

To Balance c/d

30,000

60,000

By Balance b/d

30,000

60,000

30,000

60,000

30,000

60,000

Partners’ Current Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

₹

Simmi

₹

Simmi

Amount

₹

Sonu

₹

Sonu

Date

Particulars

J.F.

Amount

₹

Simmi

₹

Simmi

Amount

₹

Sonu

₹

Sonu

To Drawings A/c

20,000

15,000

By Balance b/d

30,000

15,000

To Interest on Drawings A/c

600

450

By Interest on Capital A/c

1,500

3,000

To Balance b/d

1,17,662

43,388

By Salary to Partner A/c

12,000

9,000

By Profit and Loss

94,162

31,388

Appropriation A/c

1,37,662

58,388

1,37,662

58,388

Working Notes:

Interest on Capital

Simmi

{= ₹~30,000 × \dfrac{5}{100}}

= ₹ 1,500

Sonu

{= ₹~60,000 × \dfrac{5}{100}}

= ₹ 3,000

Total

= ₹ 1,500 + ₹ 3,000

= ₹ 4,500

Interest on Drawings

Duration

= 6 months

Simmi

{= ₹~20,000 × \dfrac{6}{100} × \dfrac{6}{12}}

= ₹ 600

Sonu

{= ₹~15,000 × \dfrac{6}{100} × \dfrac{6}{12}}

= ₹ 450

Total

= ₹ 600 + ₹ 450

= ₹ 1,050

Salary

Simmi

₹ 12,000

Sonu

₹ 9,000

Total

₹ 21,000

Profit Sharing

Net Profit

₹ 1,50,000

Interest on Capital

(₹ 4,500)

Salaries

(₹ 21,000)

Interest on Drawings

₹ 1,050

₹ 1,25,550

Simmi

{= ₹~125,550 × \dfrac{3}{4}}

= ₹ 94,162

Sonu

{= ₹~125,550 × \dfrac{1}{4}}

= ₹ 31,388

11. Arvind and Anand are partners sharing profits and losses in the ratio 8:3:1 3:1 Balances in their capital accounts on April 01, 2019 were, Arvind- ₹ 4,40,000 and Anand ₹ 2,60,000. As per their agreement, partners were entitled to interest on capital @ 5% p.a., and interest on drawings was to be charged @ 6% p.a. Arvind was allowed an annual salary of ₹ 35,000/- for the additional responsibilities taken up by him. Partners drawings for the year were, Arvind ₹ 40,000 and Anand ₹ 28,000. Profit and loss account of the firm for the year ending March 31, 2020 showed a Net Loss of ₹ 32,400. Prepare Profit and Loss Appropriation Account.

Note: In case firm suffers a loss, no interest on capital, salary, remuneration is to be allowed to partners. Also, as the period for which the drawings were made is not given, we assume that the drawings remained drawn for 6 months.

Profit and Loss Appropriation Account

Dr.

Cr.

Particulars

Amount

₹

₹

Particulars

Amount

₹

₹

To Profit and Loss A/c

32,400

By Interest on Drawings A/c

Arvind

1,200

Anand

840

2,040

Loss Transferred

By Arvind’s Capital A/c

22,770

By Anand’s Capital A/c

7,590

30,360

32,400

32,400

Working Notes:

Interest on Drawings

Duration

= 6 months

Arvind

{= ₹~40,000 × \dfrac{6}{100} × \dfrac{6}{12}}

= ₹ 1,200

Anand

{= ₹~28,000 × \dfrac{6}{100} × \dfrac{6}{12}}

= ₹ 840

Total

= ₹ 1,200 + ₹ 840

= ₹ 2,040

Share of Loss

Net Loss

(₹ 32,400)

Interest on Drawings

₹ 2,040

(₹ 30,360)

Arvind

= (₹ 30,360) × \dfrac{3}{4}

= (₹ 22,770)

Anand

= (₹ 30,360) × \dfrac{1}{4}

= (₹ 7,590)

12. Ramesh and Suresh were partners in a firm sharing profits in the ratio of their capitals contributed on commencement of business which were ₹ 80,000 and ₹ 60,000 respectively. The firm started business on April 1, 2016. According to the partnership agreement, interest on capital and drawings are 12% and 10% p.a., respectively. Ramesh and Suresh are to get a monthly salary of ₹ 2,000 and ₹ 3,000, respectively.

The profits for year ended March 31, 2017 before making above appropriations was ₹ 1,00,300. The drawings of Ramesh and Suresh were ₹ 40,000 and ₹ 50,000, respectively. Interest on drawings amounted to ₹ 2,000 for Ramesh and ₹ 2,500 for Suresh. Prepare Profit and Loss Appropriation Account and partners’ capital accounts, assuming that their capitals are fluctuating.

Profit and Loss Appropriation Account

Dr.

Cr.

Particulars

Amount

₹

₹

Particulars

Amount

₹

₹

To Interest on Capital A/c

By Profit and Loss A/c

1,00,300

Ramesh

9,600

By Interest on Drawings A/c

Suresh

7,200

16,800

Ramesh

2,000

To Salary to Partner A/c

Suresh

2,500

4,500

Ramesh

24,000

Suresh

36,000

60,000

Profit Transferred:

To Ramesh’s Capital A/c

16,000

To Suresh’s Capital A/c

12,000

1,04,800

1,04,800

Partners’ Capital Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

₹

Suresh

₹

Suresh

Amount

₹

Ramesh

₹

Ramesh

Date

Particulars

J.F.

Amount

₹

Suresh

₹

Suresh

Amount

₹

Ramesh

₹

Ramesh

To Drawings A/c

40,000

50,000

By Cash A/c

80,000

60,000

To Interest on Drawings A/c

2,000

4,500

By Interest on Capital A/c

9,600

7,200

To Balance c/d

87,600

60,700

By Salary to Partner A/c

24,000

36,000

By Profit and Loss

Appropriation A/c

Appropriation A/c

16,000

12,000

1,29,600

1,15,200

1,29,600

1,15,200

Working Notes:

Interest on Capital

Ramesh

{= ₹~80,000 × \dfrac{12}{100}}

= ₹ 9,600

Suresh

{= ₹~60,000 × \dfrac{12}{100}}

= ₹ 7,200

Total

= ₹ 9,600 + ₹ 7,200

= ₹ 16,800

Interest on Drawings

Ramesh

= ₹ 2,000

Suresh

= ₹ 2,500

Total

= ₹ 2,000 + ₹ 2,500

= ₹ 4,500

Salaries

Ramesh

= ₹ 2,000 × 12

= ₹ 24,000

Suresh

= ₹ 3,000 × 12

= ₹ 36,000

Total

= ₹ 24,000 + ₹ 36,000

= ₹ 60,000

Profit Sharing

Profit Sharing Ratio

= 80,000:60,000

= 4:3

Net Profit

₹ 1,00,300

Interest on Capital

(₹ 16,800)

Interest on Drawings

₹ 4,500

Salaries

(₹ 60,000)

₹ 28,000

Ramesh’s share

{= ₹~28,000 × \dfrac{4}{7}}

= ₹ 16,000

Suresh’s share

{= ₹~28,000 × \dfrac{3}{7}}

= ₹ 12,000

13. Sukesh and Vanita were partners in a firm. Their partnership agreement provides that:

(i)

Profits would be shared by Sukesh and Vanita in the ratio of 3:2;

(ii)

5% interest is to be allowed on capital;

(iii)

Vanita should be paid a monthly salary of ₹ 600.

The following balances are extracted from the books of the firm, on March 31, 2017.

Sukesh

₹

₹

Vanita

₹

₹

Capital Accounts

40,000

40,000

Current Accounts

(Cr.) 7,200

(Cr.) 2,800

Drawings

10,850

8,150

Net profit for the year, before charging interest on capital and after charging Sukesh’s partner’s salary was ₹ 9,500. Prepare the Profit and Loss Appropriation Account and the Partner’s Current Accounts.

In the problem, the net profit is provided after charging partner’s salary. So, we don’t have to consider the salary in the Profit and Loss appropriation account.

Profit and Loss Appropriation Account

Dr.

Cr.

Particulars

Amount

₹

₹

Particulars

Amount

₹

₹

To Interest on Capital A/c

By Profit and Loss A/c

9,500

Sukesh

2,000

Vanita

2,000

4,000

Profit Transferred:

To Sukesh’s Current A/c

3,300

To Vanita’s Current A/c

2,200

5,500

9,500

9,500

Partners’ Capital Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

₹

Sukesh

₹

Sukesh

Amount

₹

Vanita

₹

Vanita

Date

Particulars

J.F.

Amount

₹

Sukesh

₹

Sukesh

Amount

₹

Vanita

₹

Vanita

To Balance c/d

40,000

40,000

By Balance b/d

40,000

40,000

40,000

40,000

40,000

40,000

Partners’ Current Account

Dr.

Cr.

Date

Particulars

J.F.

Amount

₹

Sukesh

₹

Sukesh

Amount

₹

Vanita

₹

Vanita

Date

Particulars

J.F.

Amount

₹

Sukesh

₹

Sukesh

Amount

₹

Vanita

₹

Vanita

To Drawings A/c

10,850

8,150

By Balance b/d

7,200

2,800

To Balance c/d

1,650

6,050

By Salary to Partner A/c

–

7,200

By Interest on Capital A/c

2,000

2,000

By Profit and Loss

Appropriation A/c

Appropriation A/c

3,300

2,200

12,500

14,200

12,500

14,200

Working Notes:

Interest on Capital

Sukesh

{= ₹~40,000 × \dfrac{5}{100}}

= ₹ 2,000

Vanita

{= ₹~40,000 × \dfrac{5}{100}}

= ₹ 2,000

Total

= ₹ 2,000 + ₹ 2,000

= ₹ 4,000

Profit Sharing:

Net Profit

₹ 9,500

Interest on Capital

(₹ 4,000)

₹ 5,500

Profit Sharing Ratio

= 3:2

Sukesh’s share

{= ₹~5,500 × \dfrac{3}{5}}

= ₹ 3,300

Vanita’s share

{= ₹~5,500 × \dfrac{2}{5}}

= ₹ 2,200

14. Rahul, Rohit and Karan started partnership business on April 1, 2016 with capitals of ₹ 20,00,000, ₹ 18,00,000 and ₹ 16,00,000, respectively. The profit for the year ended March 2017 amounted to ₹ 1,35,000 and the partner’s drawings had been Rahul ₹ 50,000, Rohit and Karan ₹ 40,000. The profits are distributed among partner’s in the ratio of 3:2:1. Calculate the interest on capital @ 5% p.a.

Note here that the information about the drawings is redundant (we don’t need it to solve the problem). Also note that we just have to calculate the interest on capital. Preparation of any accounts is not asked for in this problem.

Interest on Capital:

Rahul

{= ₹~20,00,000 × \dfrac{5}{100}}

= ₹ 1,00,000

Rohit

{= ₹~18,00,000 × \dfrac{5}{100}}

= ₹ 90,000

Karan

{= ₹~16,00,000 × \dfrac{5}{100}}

= ₹ 80,000

15. Sunflower and Pink Rose started partnership business on April 01, 2016 with capitals of ₹ 2,50,000 and ₹ 1,50,000, respectively. On October 01, 2016, they decided that their capitals should be ₹ 2,00,000 each. The necessary adjustments in the capitals are made by introducing or withdrawing cash. Interest on capital is to be allowed @ 10% p.a. Calculate interest on capital as on March 31, 2017.

The interest on capital can be calculated by either

1.

Simple Interest Method

2.

Product Method Method

1. Simple Interest Method

Sunflower

Capital

(Before adjustment)

(Before adjustment)

= ₹ 2,50,000

(From Apr 01, 2016 to Sep 30, 2016)

Duration

= 6 months

Interest on Capital

{= ₹~2,50,000 × \dfrac{10}{100} × \dfrac{6}{12}}

= ₹ 12,500

Capital

(After ajustment)

(After ajustment)

= ₹ 2,00,000

(From Oct 01, 2016 to Mar 31, 2017)

Duration

= 6 months

Interest on Capital

{= ₹~2,00,000 × \dfrac{10}{100} × \dfrac{6}{12}}

= ₹ 10,000

Total Interest on Capital

= ₹ 12,500 + ₹ 10,000

= ₹ 22,500

Pink Rose

Capital

(Before adjustment)

(Before adjustment)

= ₹ 1,50,000

(From April 01, 2016 to Sep 30, 2016)

Duration

= 6 months

Interest on Capital

{= ₹~1,50,000 × \dfrac{10}{100} × \dfrac{6}{12}}

= ₹ 7,500

Capital

(After adjustment)

(After adjustment)

= ₹ 2,00,000

(From Oct 01, 2016 to Mar 31, 2017)

Duration

= 6 months

Interest on Capital

{= ₹~2,00,000 × \dfrac{10}{100} × \dfrac{6}{12}}

= ₹ 10,000

Total Interest on Capital

= ₹ 7,500 + ₹ 10,000

= ₹ 17,500

2. Product Method

Sunflower

From

To

Amount

₹

₹

Time Period

Product

₹

₹

Apr 01, 2016

Sep 30, 2016

2,50,000

6 months

15,00,000

Oct 01, 2016

Mar 31, 2017

2,00,000

6 months

12,00,000

Total

27,00,000

Pink Rose

From

To

Amount

₹

₹

Time Period

Product

₹

₹

Apr 01, 2016

Sep 30, 2016

1,50,000

6 months

9,00,000

Oct 01, 2016

Mar 31, 2017

2,00,000

6 months

12,00,000

Total

21,00,000

We know that

Interest on Capital

{= \text{Sum of Products} × \dfrac{\text{Rate}}{100} × \dfrac{1}{12}}

Interest on Sunflower’s Capital

{= ₹~27,00,000 × \dfrac{10}{100} × \dfrac{1}{12}}

= ₹ 22,500

Interest on Pink Rose’s Capital

{= ₹~21,00,000 × \dfrac{10}{100} × \dfrac{1}{12}}

= ₹ 17,500

16. On March 31, 2017 after the close of accounts, the capitals of Mountain, Hill and Rock stood in the books of the firm at ₹ 4,00,000, ₹ 3,00,000 and ₹ 2,00,000, respectively. Subsequently, it was discovered that the interest on capital @ 10% p.a. had been omitted. The profit for the year amounted to ₹ 1,50,000 and the partner’s drawings had been Mountain: ₹ 20,000, Hill ₹ 15,000 and Rock ₹ 10,000. Calculate interest on capital.

We need to find the opening capital to calculate the interest on capital. In the problem the closing capitals are given. Note that, if we subtract the drawings from the opening capital and add profits to the opening capital, we get the closing capital. So, to get the opening capital from the closing capital (which is given in the problem), we need to perform the reverse calculation i.e. Take the closing capital, add Drawings and subtract profit

Also note that the ratio in which the profits are shared is not given. So, we assume that the profits are shared equally among the partmers

Profit for each partner

{= ₹~1,50,000 × \dfrac{1}{3}}

= ₹ 50,000

Amount

₹

Mountain

₹

Mountain

Amount

₹

Hill

₹

Hill

Amount

₹

Rock

₹

Rock

Closing Capital

4,00,000

3,00,000

2,00,000

Drawings

20,000

15,000

10,000

Profit

(50,000)

(50,000)

(50,000)

Opening Capital

3,70,000

2,65,000

1,60,000

Interest on Capital

{3,70,000 × \dfrac{10}{100}}

{2,65,000 × \dfrac{10}{100}}

{1,60,000 × \dfrac{10}{100}}

= 37,000

= 26,500

= 16,000

17. Following is the extract of the Balance Sheet of, Neelkant and Mahdev as on March 31, 2017:

Liabilities

Amount

₹

₹

Assets

Amount

₹

₹

Neelkant’s Capital

10,00,000

Sundry Assets

30,00,000

Mahadev’s Capital

10,00,000

Neelkant’s Current Account

1,00,000

Mahadev’s Current Account

1,00,000

Profit and Loss Apprpriation

(March 2017)

(March 2017)

8,00,000

30,00,000

30,00,000

During the year Mahadev’s drawings were ₹ 30,000. Profits during 2016-17 is ₹ 10,00,000. Calculate interest on capital @ 5% p.a for the year ending March 31, 2017.

Note that in the balance sheet provided the capital and current account details are provided. This means that the books are prepared using the Fixed Capital Method. So, the capital would remain the same at the beginning and at the end of the accounting period. So, while calculating the interest on the capital, we can consider the capital provided in the balance sheet. Also note that the rest of the information in the problem is redundant (not used to arrive at the solution)

Partner

Interest Calculation

Interest on Capital

₹

₹

Neelkant

{= 10,00,000 × \dfrac{5}{100}}

50,000

Mahadev

{= 10,00,000 × \dfrac{5}{100}}

50,000

18. Rishi is a partner in a firm. He withdrew the following amounts during the year ended March 31, 2017.

May 01, 2017

₹ 12,000

July 31, 2017

₹ 6,000

September 30, 2017

₹ 9,000

November 30, 2017

₹ 12,000

January 01, 2018

₹ 8,000

March 31, 2018

₹ 7,000

Interest on drawings is charged @ 9% p.a.

Calculate interest on drawings

We use the product method to calculate the interest on drawings.

From

To

Drawings

₹

₹

Duration

(months)

(months)

Calculation

Product

₹

₹

May 01, 2017

Mar 31, 2018

12,000

11

= ₹ 12,000 × 11

1,32,000

July 31, 2017

Mar 31, 2018

6,000

8

= ₹ 6,000 × 8

48,000

Sep 30, 2017

Mar 31, 2018

9,000

6

= ₹ 9,000 × 6

54,000

Nov 30, 2017

Mar 31, 2018

12,000

4

= ₹ 12,000 × 4

48,000

Jan 01, 2017

Mar 31. 2018

8,000

3

= ₹ 8,000 × 3

24,000

Mar 31, 2017

Mar 31. 2018

7,000

0

= ₹ 7,000 × 0

0

3,06,000

Interest on Drawings

{= \text{Products Total} × \dfrac{\text{Rate}}{100} × \dfrac{1}{12}}

{= ₹~3,06,000 × \dfrac{9}{100} × \dfrac{1}{12}}

= ₹ 2,295

19. The capital accounts of Moli and Golu showed balances of ₹ 40,000 and ₹ 20,000 as on April 01, 2016. They shared profits in the ratio of 3:2. They allowed interest on capital @ 10% p.a. and interest on drawings, @ 12 p.a. Golu advanced a loan of ₹ 10,000 to the firm on August 01, 2016.

During the year, Moli withdrew Rs. 1,000 per month at the beginning of every month whereas Golu withdrew ₹ 1,000 per month at the end of every month. Profit for the year, before the above mentioned adjustments was ₹ 20,950. Calculate interest on drawings show distribution of profits and prepare partner’s capital accounts.

As we know, when the fixed amounts of drawings are made at the beginning of every month, the average period is considered as 6½ months. So, for Moli, the average period for which interest is to be calculated is 6½ months.

As we know, when the fixed amounts of drawings are made at the beginning of every month, the average period is considered as 5½ months. So, for Goli, the average period for which interest is to be calculated is 5½ months.

Also, the interest on loan is not given in the problem. So, it is assumed to be @ 6% p.a.

Also, Interest on Loan need to be charged on the profits. In otherwords, it should be deducted from the net profit before considering it in the Profit and Loss Appropriation Account.

Profit and Loss Appropriation Account

Dr.

Cr

Particulars

Amount

₹

₹

Particulars

Amount

₹

₹

To Interest on Capital A/c

By Profit and Loss A/c

20,550

Moli

4,000

By Interest on Drawings A/c

Golu

2,000

6,000

Moli

780

Profit Transferred

Golu

660

1,440

To Moli’s Capital A/c

9,594

To Golu’s Capital A/c

6,396

15,990

21,990

21,990

Partners’ Capital Account

Dr.

Cr

Date

Particulars

J.F.

Amount

₹

Moli

₹

Moli

Amount

₹

Golu

₹

Golu

Date

Particulars

J.F.

Amount

₹

Moli

₹

Moli

Amount

₹

Golu

₹

Golu

To Drawings A/c

12,000

12,000

By Balance b/d

40,000

20,000

To Interest on Drawings A/c

780

660

By Interest on Capital A/c

4,000

2,000

To Balance c/d

40,814

15,736

By Profit and Loss

Appropriation A/c

Appropriation A/c

9,594

6,396

53,594

28,396

53,594

28,396

Working Notes:

Interest on Capital

Moli

{= ₹~40,000 × \dfrac{10}{100}}

= ₹ 4,000

Golu

{= ₹~20,000 × \dfrac{10}{100}}

= ₹ 2,000

Total

= ₹ 4,000 + ₹ 2,000

= ₹ 6,000

Interest on Drawings

Moli’s annual Drawings

= ₹ 1,000 × 12

= ₹ 12,000

Interest on Moli’s Drawings

{= ₹~12,000 × \dfrac{12}{100} × \dfrac{6½}{12}}

= ₹ 780

{= ₹~12,000 × \dfrac{12}{100} × \dfrac{13}{2} × \dfrac{1}{12}}

Golu’s annual Drawings

= ₹ 1,000 × 12

= ₹ 12,000

Interest on Golu’s Drawings

{= ₹~12,000 × \dfrac{12}{100} × \dfrac{5½}{12}}

{= ₹~12,000 × \dfrac{12}{100} × \dfrac{11}{2} × \dfrac{1}{12}}

= ₹ 660

Total

= ₹ 780 + ₹ 660

= ₹ 1,440

Interest on Golu’s Loan

Loan Amount

= ₹ 10,000

Duration

= 8 months

Interest Rate

= 6%

Interest

{= ₹~10,000 × \dfrac{6}{100} × \dfrac{8}{12}}

= ₹ 400

Net Profit

Before Considering interest on loan

₹ 20,950

Interest on loan

(₹ 400)

₹ 20,550

Share of Profit

Net Profit Available

₹ 20,550

Interest on Capital

(₹ 6,000)

Interest on Drawings

₹ 400

₹ 15,990

Moli’s Share

{= ₹~15,990 × \dfrac{3}{5}}

= ₹ 9,594

Golu’s Share

{= ₹~15,990 × \dfrac{2}{5}}

= ₹ 6,396

20. Rakesh and Roshan are partners, sharing profits in the ratio of 3:2 with capitals of ₹ 40,000 and ₹ 30,000, respectively. They withdrew from the firm the following amounts, for their personal use:

Rakesh

Month

₹

May 31, 2016

June 30, 2016

August 31, 2016

November 1, 2016

December 31, 2016

January 31, 2017

March 01, 2017

600

500

1,000

400

1,500

300

700

Rohan

At the beginning of each month

400

Interest on drawings is to be charged @ 6% p.a. Calculate interest on drawings, assuming that book of accounts are closed on March 31, 2017, every year.

As Rakesh has withdrawn varying amounts at different times, we need to use products method to find the interest on drawings.

As Rohan has withdrawn the amount at the beginning of each month, his average duration would be 6½ months.

Rakesh’s Total Drawings

Products Method

Products Method

From

To

Drawings

₹

₹

Duration

(months)

(months)

Calculation

Product

₹

₹

May 31, 2016

Mar 31 2017

600

10

= ₹ 600 × 10

6,000

Jun 30, 2016

Mar 31 2017

500

9

= ₹ 500 × 9

4,500

Aug 31, 2016

Mar 31 2017

1,000

7

= ₹ 1,000 × 7

7,000

Nov 01, 2016

Mar 31 2017

400

5

= ₹ 400 × 5

2,000

Dec 31, 2016

Mar 31 2017

1,500

3

= ₹ 1,500 × 3

4,500

Jan 31, 2016

Mar 31 2017

300

2

= ₹ 300 × 2

600

Mar 01, 2016

Mar 31 2017

700

1

= ₹ 700 × 1

700

25,300

Rakesh’s Drawings

= ₹ 25,300

Interest on Rakesh’s Drawings

{= \text{Sum of Products} × \dfrac{\text{Rate}}{100} × \dfrac{1}{12}}

{= ₹~25,300 × \dfrac{6}{100} × \dfrac{1}{12}}

= ₹ 126.50

Roshan’s Drawings

= ₹ 400 × 12

= ₹ 4,800

Interest on Roshan’s Drawings

{= \text{Total Amount} × \dfrac{\text{Rate}}{100} × \dfrac{6½}{12}}

{= ₹~4,800 × \dfrac{6}{100} × \dfrac{13}{2} × \dfrac{1}{12}}

= ₹ 156

21. Himanshu withdrew ₹ 2,500 at the end of each month. The Partnership deed provides for charging interest on drawings @ 12% p.a. Calculate interest on Himanshu’s drawings for the year ending March 31, 2017.

When the drawings are made at the end of each month, the average period is considered to be 5½ months.

Total Drawings

= ₹ 2,500 × 12

= ₹ 30,000

Interest on Drawings

{= \text{Total Drawings} × \dfrac{\text{Rate}}{100} × \dfrac{\text{Duration}}{12}}

{= ₹~30,000 × \dfrac{12}{100} × \dfrac{5½}{12}}

{= ₹~30,000 × \dfrac{12}{100} × \dfrac{11}{2} × \dfrac{1}{12}}

= ₹ 1,650

22. Bharam is a partner in a firm. He withdraws ₹ 3,000 at the starting of each month for 12 months. The books of the firm are closed on March 31 every year. Calculate interest on drawings if the rate of interest is 10% p.a.

When the drawings are made at the beginning of each month, the average period is considered to be 6½ months.

Total Drawings

= ₹ 3,000 × 12

= ₹ 36,000

Interest on Drawings

{= \text{Total Drawings} × \dfrac{\text{Rate}}{100} × \dfrac{\text{Duration}}{12}}

{= ₹~36,000 × \dfrac{12}{100} × \dfrac{6½}{12}}

{= ₹~36,000 × \dfrac{12}{100} × \dfrac{13}{2} × \dfrac{1}{12}}

= ₹ 1,950

23. Raj and Neeraj are partners in a firm. Their capitals as on April 01, 2017 were ₹ 2,50,000 and ₹ 1,50,000, respectively. They share profits equally. On July 01, 2017, they decided that their capitals should be ₹ 1,00,000 each. The necessary adjustment in the capitals were made by introducing or withdrawing cash by the partners’. Interest on capital is allowed @ 8% p.a. Compute interest on capital for both the partners for the year ending on March 31, 2018.

The interest on capital can be calculated by either

1.

Simple Interest Method

2.

Product Method Method

1. Simple Interest Method

Raj

Capital

(Before adjustment)

(Before adjustment)

= ₹ 2,50,000

(From April 01, 2017 to Jun 30, 2017)

Duration

= 3 months

Interest on Capital

{= ₹~2,50,000 × \dfrac{8}{100} × \dfrac{3}{12}}

= ₹ 5,000

Capital

(After ajustment)

(After ajustment)

= ₹ 1,00,000

(From Jul 01, 2017 to Mar 31, 2018)

Duration

= 9 months

Interest on Capital

{= ₹~1,00,000 × \dfrac{8}{100} × \dfrac{9}{12}}

= ₹ 6,000

Total Interest on Capital

= ₹ 5,000 + ₹ 6,000

= ₹ 11,000

Neeraj

Capital

(Before adjustment)

(Before adjustment)

= ₹ 1,50,000

(From April 01, 2017 to Jun 30, 2017)

Duration

= 3 months

Interest on Capital

{= ₹~1,50,000 × \dfrac{8}{100} × \dfrac{3}{12}}

= ₹ 3,000

Capital

(After adjustment)

(After adjustment)

= ₹ 1,00,000

(From Jul 01, 2017 to Mar 31, 2018)

Duration

= 9 months

Interest on Capital

{= ₹~1,00,000 × \dfrac{8}{100} × \dfrac{9}{12}}

= ₹ 6,000

Total Interest on Capital

= ₹ 3,000 + ₹ 6,000

= ₹ 9,000

2. Product Method

Raj

From

To

Amount

₹

₹

Time Period

Product

₹

₹

April 01, 2017

Jun 30, 2017

2,50,000

3 months

7,50,000

Jul 01, 2017

Mar 31, 2018

1,00,000

9 months

9,00,000

Total

16,50,000

Neeraj

From

To

Amount

₹

₹

Time Period

Product

₹

₹

April 01, 2017

Jun 30, 2017

1,50,000

3 months

4,50,000

Jul 01, 2017

Mar 31, 2018

1,00,000

9 months

9,00,000

Total

13,50,000

We know that

Interest on Capital

{= \text{Sum of Products} × \dfrac{\text{Rate}}{100} × \dfrac{1}{12}}

Interest on Raj’s Capital

{= ₹~16,50,000 × \dfrac{8}{100} × \dfrac{1}{12}}

= ₹ 11,000

Interest on Neeraj’s Capital

{= ₹~13,50,000 × \dfrac{8}{100} × \dfrac{1}{12}}

= ₹ 9,000

24. Amit and Bhola are partners in a firm. They share profits in the ratio of 3:2. As per their partnership agreement, interest on drawings is to be charged @ 10% p.a. Their drawings during 2017 were ₹ 24,000 and ₹ 16,000, respectively. Calculate interest on drawings based on the assumption that the amounts were withdrawn evenly, throughout the year.

As the amounts are drawn evenly, the average duration should be taken as 6 months.

Interest on Drawings

{= \text{Drawings} × \dfrac{\text{Rate}}{100} × \dfrac{\text{Duration}}{100}}

Interest on Amit’s Drawings

{= ₹~24,000 × \dfrac{10}{100} × \dfrac{6}{12}}

= ₹ 1,200

Interest on Bhola’s Drawings

{= ₹~16,000 × \dfrac{10}{100} × \dfrac{6}{12}}

= ₹ 800

25. Harish is a partner in a firm. He withdrew the following amounts during the year 2017 :

₹

February 01

4,000

May 01

12,000

June 30

4,000

October 31

12,000

December 31

4,000

Interest on drawings is to be charged @ 7½% p.a.

Calculate the amount of interest to be charged on Harish’s drawings for the year ending December 31, 2017.

We use the product method to calculate the interest on drawings.

Products Method

From

To

Drawings

₹

₹

Duration

(months)

(months)

Calculation

Product

₹

₹

Feb 01, 2017

Mar 31, 2018

4,000

11

= ₹ 4,000 × 11

44,000

May 01, 2017

Mar 31, 2018

10,000

8

= ₹ 10,000 × 8

80,000

Jun 30, 2017

Mar 31, 2018

4,000

6

= ₹ 4,000 × 6

24,000

Oct 31, 2017

Mar 31, 2018

12,000

2

= ₹ 12,000 × 2

24,000

Dec 31, 2017

Mar 31, 2018

4,000

0

= ₹ 4,000 × 0

0

Total

1,72,000

Interest on Drawings

{= \text{\text{Products Total}} × \dfrac{\text{\text{Rate}}}{100} × \dfrac{1}{12}}

{= ₹~1,72,000 × \dfrac{7½}{100} × \dfrac{1}{12}}

{= ₹~1,72,000 × \dfrac{15}{2 × 100} × \dfrac{1}{12}}

= ₹ 1,075

26. Menon and Thomas are partners in a firm. They share profits equally. Their monthly drawings are ₹ 2,000 each. Interest on drawings is to be charged @ 10% p.a. Calculate interest on Menon’s drawings for the year 2006, assuming that money is withdrawn: (i) in the beginning of every month, (ii) in the middle of every month, and (iii) at the end of every month.

Total Drawings in each case

= ₹ 2,000 × 12

= ₹ 2,400

(i) When the withdrawals are made in the beginning of the month

When the drawings are made in the beginning of the month, the average duration of withdrawal is 6½ months

Interest on Drawings

{= \text{Total Drawings} × \dfrac{\text{Rate}}{100} × \dfrac{6½}{12}}

{= \text{Total Drawings} × \dfrac{\text{Rate}}{100} × \dfrac{13}{2} × \dfrac{1}{12}}

Interest on Menon’s Drawings

{= ₹~24,000 × \dfrac{10}{100} × \dfrac{13}{2} × \dfrac{1}{12}}

= ₹ 1,300

Interest on Thomas’s Drawings

{= ₹~24,000 × \dfrac{10}{100} × \dfrac{13}{2} × \dfrac{1}{12}}

= ₹ 1,300

(ii) When the withdrawals are made in the middle of the month

When the drawings are made in the middle of the month, the average duration of withdrawal is 6 months

Interest on Drawings

{= \text{Total Drawings} × \dfrac{\text{Rate}}{100} × \dfrac{6}{12}}

Interest on Menon’s Drawings

{= ₹~24,000 × \dfrac{10}{100} × \dfrac{6}{12}}

= ₹ 1,200

Interest on Thomas’s Drawings

{= ₹~24,000 × \dfrac{10}{100} × \dfrac{6}{12}}

= ₹ 1,200

(ii) When the withdrawals are made in the beginning of the month

When the drawings are made in the end of the month, the average duration of withdrawal is 5½ months

Interest on Drawings

{= \text{Total Drawings} × \dfrac{\text{Rate}}{100} × \dfrac{5½}{12}}

{= \text{Total Drawings} × \dfrac{\text{Rate}}{100} × \dfrac{11}{2} × \dfrac{1}{12}}

Interest on Menon’s Drawings

{= ₹~24,000 × \dfrac{10}{100} × \dfrac{11}{2} × \dfrac{1}{12}}

= ₹ 1,100

Interest on Thomas’s Drawings

{= ₹~24,000 × \dfrac{10}{100} × \dfrac{11}{2} × \dfrac{1}{12}}

= ₹ 1,100

Note: As the calculation is the same for both the partners, you can perform the calculation of Interest on Capital once and declare that as the interest on capital for both the partners.

27. On March 31, 2017, after the close of books of accounts, the capital accounts of Ram, Shyam and Mohan showed balance of ₹ 24,000, ₹ 18,000 and ₹ 12,000, respectively. It was later discovered that interest on capital @ 5% had been omitted. The profit for the year ended March 31, 2017, amounted to ₹ 36,000 and the partner’s drawings had been Ram, ₹ 3,600; Shyam, ₹ 4,500 and Mohan, ₹ 2,700. The profit sharing ratio of Ram, Shyam and Mohan was 3:2:1. Calculate interest on capital.

We need to find the opening capital to calculate the interest on capital. In the problem the closing capitals are given. Note that, if we subtract the drawings from the opening capital and add profits to the opening capital, we get the closing capital. So, to get the opening capital from the closing capital (which is given in the problem), we need to perform the reverse calculation i.e. Take the closing capital, add Drawings and subtract profit

Profit

= ₹ 36,000

Profit Share of Ram

{= ₹~36,000 × \dfrac{3}{6}}

= ₹ 18,000

Profit Share of Shyam

{= ₹~36,000 × \dfrac{2}{6}}

= ₹ 12,000

Profit Share of Mohan

{= ₹~36,000 × \dfrac{1}{6}}

= ₹ 6,000

Amount

₹

Ram

₹

Ram

Amount

₹

Shyam

₹

Shyam

Amount

₹

Mohan

₹

Mohan

Closing Capital

24,000

18,000

12,000

Drawings

3,600

4,500

2,700

Profit

(18,000)

(12,000)

(6,000)

Opening Capital

9,600

10,500

8,700

Interest on Capital

{= 9,600 × \dfrac{5}{100}}

{= 10,500 × \dfrac{5}{100}}

{= 8,700 × \dfrac{5}{100}}

= 480

= 525

= 435