Unit 1: Accounting for Partnership Firms – Basic Concepts

Tripathi and Chauhan are partners in a firm sharing profits and losses in the ratio of 3:2. Their capitals were ₹ 60,000 and ₹ 40,000 as on January 01, 2015. During the year, they earned a profit of ₹ 30,000. According to the partnership deed, both partners are entitled to ₹ 1,000 per month as salary and 5% interest on their capital. They are also to be charged an interest of 5% on their drawings, irrespective of the period, which is ₹ 12,000 for Tripathi and ₹ 8,000 for Chauhan. Prepare Partner’s Accounts when capitals are fixed.

a) If interest on Capital and Partners’ salaries and interest on drawings is charged against profit, the solution will be as follows:

Anubha and Kajal are partners of a firm, sharing profits and losses in the ratio of 2:1. Their capital was ₹ 90,000 and ₹ 60,000. The profit during the year was ₹ 45,000. According to the partnership deed, both partners are allowed a salary of ₹ 700 per month to Anubha and ₹ 500 per month to Kajal. Interest allowed on capital @ 5% p.a. The drawings at the end of the period were ₹ 8,500 for Anubha and ₹ 6,500 for Kajal. Interest is to be charged @ 5% p.a. on drawings. Prepare partners’ capital accounts, assuming that the capital account is fluctuating.

Harshad and Dhiman have been 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 a long illness, Harshad could not participate in business activities from August 1 to September 30, 2017. The profits for the year ended March 31, 2017, amounted to ₹ 1,80,000. A 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 to 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 a Profit and Loss Appropriation Account.

Aakriti and Bindu entered into a partnership to make garments 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 a loan to the firm without any agreement as to interest. The profit and Loss account for the year ended March 2017 showed a profit of ₹ 43,000. Partners could not agree upon the question of interest and the basis of the division of profit. You are required to divide the profits between them, giving the reason for your solution.

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 the 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. You are required to prepare the Profit and Loss Appropriation Account and Partner’s Capital Account.

If interest on capital and Partners’ salaries will be provided even if the firm involves in the loss.

Lokesh and Azad are partners sharing profits in the ratio of 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 the manager’s commission. Prepare accounts showing the allocation of profits and partner’s capital accounts.

The partnership agreement between Maneesh and Girish provides that:

(i) Profits will be shared equally.

(ii) Maneesh will be allowed a salary of ₹ 400/month.

(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% interest will be allowed on the partner’s fixed capital.

(v) 5% interest will be charged on the 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 the firm’s Profit and Loss Appropriation Account.

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.

Amann, Babita and Suresh are partners in a firm. Their profit-sharing ratio is 2:2:1. Suresh is guaranteed a minimum amount of ₹ 10,000 as a share of profit every year. Any deficiency on that account shall be met by Babita. The profits for the 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.

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 ₹ 1,50,000. Prepare the Profit and Loss Appropriation Account by taking into consideration the following information:

(i) Partners’ capital on April 1, 2016

        Simmi ₹ 30,000, Sonu ₹ 60,000

(ii) Current accounts balance on April 1, 2016

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

(iii) Partners’ drawings during the year amounted to

        Simmi ₹ 20,000, Sonu ₹ 15,000

(iv) Interest on capital was allowed @ 5% p.a.

(v) Interest on the drawing was to be charged @ 6% p.a. at an average of six months

(vi) Partners’ salaries: Simmi ₹ 12,000 and Sonu ₹ 9,000. Also, show the partners’ current accounts.