CHAPTER FUNDAMENTALS OF PARTNERSHIP I. PROFIT AND LOSS APPROPRIATION ACCOUNT. Question 1

Size: px

Start display at page:

Download "CHAPTER FUNDAMENTALS OF PARTNERSHIP I. PROFIT AND LOSS APPROPRIATION ACCOUNT. Question 1"

Johnathan Summers
5 years ago
Views:

CHAPTER 02 FUNDAMENTALS OF PARTNERSHIP I. PROFIT AND LOSS APPROPRIATION ACCOUNT Question 1 A, B and C are partners sharing profits in the ratio 2:1:1.

allowed at the rate of 10% p.a. b) Interest on drawing to be charged at the rate 6% p.a. c) B is to be allowed a salary of 2,000 per month d) C is entitled to a commission of 10% of the net profits

1 CHAPTER 02 FUNDAMENTALS OF PARTNERSHIP I. PROFIT AND LOSS APPROPRIATION ACCOUNT Question 1 A, B and C are partners sharing profits in the ratio 2:1:1. Their balances on 1 st April 2015 were as follows: A B C Capital accounts 40,000 50,000 60,000 Current accounts 1,500 (Dr) 4,500 3,600 The partnership deed provides : a) Interest on capital be allowed at the rate of 10% p.a. b) Interest on drawing to be charged at the rate 6% p.a. c) B is to be allowed a salary of 2,000 per month d) C is entitled to a commission of 10% of the net profits e) 20% of the net profit be transferred to general reserve The net profit as on 31 st March 2016 was 4,78,000 and the partners drawings were 12,000 16,000 and 10,000 respectively. Prepare the profit and loss appropriation account Partners capital account. (Ans: P and L appropriation account profit Rs. 2,96,740; Partners capital account A 40,000; B 50,000; C 60,000; Partners current account A 1,38,510; B 91,205; C 1,21,285) Question 2 (ISC 2016) Shankar and Manu are partners in a firm. On 1 st April, 2014, their capital accounts showed a balance of Rs. 2,00,000 and Rs. 4,00,000 respectively. On this date their current account balances were Rs. 50,000 and Rs. 1,00,000 respectively. On 1 st January 2015, Shankar introduced additional capital of Rs. 2,00,000 while Manu gave a loan of Rs. 1,50,000 to the firm. The clauses of their partnership deed provided for; a) Interest on capital to be allowed at the rate of 10% per annum b) Interest on drawings to be charged at the rate of 12% per annum c) Profits to be shared by them in the ratio 3:2 d) 10% of the correct net profit to be transferred to general reserve

2 During the financial year , both partners withdrew Rs. 6,000 each at the beginning of every quarter. The net profit of the firm before any interest for the financial year was Rs. 5,00,000. You are required to prepare; i) Profit and loss appropriation a/c ii) Partners fixed capital a/c iii) Partners current a/c iv) Partners loan a/c (Ans: P and L a/c profit 3,86,575; Partners capital a/c Shankar 4,00,000; Manu 4,00,000; Partners current a/c- Shankar 2,81,145; Manu 2,68,830; Partners loan a/c- Manu 1,52,250) Question 3 A, B and C are partners in a firm sharing profits and losses in the ratio 5:3:2 and their capitals are A 2,60,000; B 3,80,000; and C 1,40,000 The net profit for the year ended 31 st December 2015 is 4,80,000 and undistributed profits as in 1 st January 2015 is 1,40,000. The partners withdrew A 1,200 end of each month, C 1,440 beginning of each month and B 1,920 each month during the year. The partners added additional capitals on A 2,40,000; C on ,20,000 and B on ,60,000. The partnership deed provides the following; a) Interest on capitals 10% p.a and interest on drawings 10 % p.a. b) B and C are to be allowed a quarterly salary of 4,000 and 5,000 each respectively c) 5% of the net profit to be transferred to general reserve d) C to be allowed a commission of 3% on the divisible profit Prepare ; Profit and loss appropriation account Capital accounts of partners (Ans: P and L appropriation account profit Rs. 4,41,106; Partners capital account A 7,43,493; B 9,11,139; C 3,86,648; Commission to C Rs. 13,642 ) Question 4 Anny, Bonny and Canny were three partners sharing profits and losses in the ratios 5:3:2. As on 1 st April, 2013 their Capitals are Anny Rs.2,60,000,Bonny Rs.2,40,000 and Canny Rs.2,20,000.

3 The profit of the firm for the year ending 31 st March, 2014 was Rs.3,00,000 before the following adjustments are made. a) Interest on 10% p.a.to be allowed to all the partners. b) Interest on drawings@ 6% p.a.to be charged from all the partners. Their Drawings are Anny Rs.6,000 during the year, Bonny Rs.400 per month at the end of each month, and Canny Rs.600 beginning of each month. c) Salaries to Partners Anny Rs.20,000 p.a. and Canny Rs.14,000.p.a. d) Bonny is allowed a Commission of 1% on Sales (Sales Rs.5,00,000). i) Prepare a Profit and Loss appropriation account. ii)capital accounts(fluctuating) of all partners. (Ans: Profit and Loss appropriation account profit Rs. 1,89,546; Partners capital account Anny 3,94,593; Bonny 3,20,931; Canny 2,86,476 ) Question 5 (ISC 2014) Rahim and Sudesh, the two partners of a business firm, agreed to appropriate the profits of their firm on the following terms: (a) Interest is payable on 5% per annum. b) Rahim will be entitled to a salary of 500 per month. c) Interest on loan to be given by the firm to the l0% per annum. d) Interest on drawings to be charged from the 5% per annum, d) Sudesh will get commission of 1% on the sales made during the year. f) Rahim is entitled to a rent of 25,000 per annum for allowing the firm to carry on the business in his premises. The net profit of the firm for the year ended 31 st March, 20 I 3, was 1,80,000 before taking into account any of the above terms. Capital Balances on 1 st April, 2012 Loan advanced on 1 st October, 2012 Drawings made during the year During the year , sales of the firm amounted to 7,00,000 From the above information, prepare: (a) Profit and loss appropriation account (b) Patners capital account Rahim 1,50, ,000 Sudesh 1,40,000 1,00,000 30,000 (Ans: Profit and Loss appropriation account profit 1,24,250; Partners capital account Rahim 2,09,625; Sudesh 1,85,375 Hint: interest on loan and rent paid to a partner needs to be deducted from Net profit ) Question 6 Sam, Ham and Tom are partners sharing profits and losses in the ratio of 5:3:2 respectively. Their capital on showed credit balance of Rs.300,000, Rs.200,000 and Rs.100,000 respectively. They withdrew Rs.1000 each on the last of every month. According to their

4 partnership agreement, they are allowed to get interest on 5% and charged interest on % per year. The profits for the year 2011 as per the Profit and Loss account amounted to Rs.4,50,000 out of which Rs.10,000 was transferred to General Reserve Account. Sam and Ham are entitled to a salary of Rs. 25,000 each per annum and Tom is entitled to a commission of 5% on Net Divisible profit after charging such commission. Prepare Profit and Loss Appropriation Account. Capital accounts of all partners. (Ans: Profit and Loss appropriation account profit 3,42,940; Tom s commission Rs. 18,050) Question 7 G,P AND R are partners in a firm sharing profits and losses in 5:3:2 ratios with capitals of Rs.2,60,000,Rs.3,80,000 and Rs.1,40,000 respectively. The Net Profit of the Firm Rs.2,88,000 for the year ended 31 st December, 2013, The undistributed Profit of the Firm as on 1 st January, 2013 Rs.90, The partners withdrew G, Rs.1,200 end of each month,p Rs.1,480 beginning of each month AND R Rs.1,920 each month during the year. 2. The partners added additional capitals on 1/7/2013, G Rs.2,40,000, P on 1/4/2013, Rs.3,60,000 and R on 1/10/2013, Rs.4,20, The partners current a/c balances are G, Rs.14,800(Dr) P Rs.6,000 (Cr) AND R Rs.7,200(Cr). The partnership deed also provides the following a) Interest on Capitals 10 % p.a. and interest on 10 % p.a. b) P and R to be allowed a QUARETERLY salary of Rs.4,000 and Rs.5,000 each respectively. c) 5% of the Net Profit to be transferred to Reserve. d) G to be allowed a commission of 3% on current year Net profit. Prepare P and L appropriation account Current accounts and capital accounts of all partners. (Ans: Profit and Loss appropriation account profit Rs. 1,94,234; Partners current account G 1,13,897; P 1,26,548; R 66,355 Partners capital account G 5,00,000; P 7,40,000 R 5,60,000) Question 8 (ISC 2015) (a) The partnership agreement of Rohit, Ali and Sneh provides that: i) Profits will be shared by them in the ratio of 2:2:1. ii) Interest on capital to be allowed at rate of 6% per annum. iii) Interest on drawings to be charged at the rate of 3% per annum. iv) Ali to be given a salary of 500 per month. v) Ali's guarantee to the firm that the firm would earn a net profit of at least 80,000 per annum and any shortfall in these profits would be personally met by him. The capitals of the partners on 1 st April, 2013, were: Rohit- 1,20,000; Ali-1,00,000; Sneh- 1,00,000.

5 During the financial year , all the three partners withdrew 1,000 each at the beginning of every month. The net profit of the firm for the year was 70,000. You are required to prepare for the year : (i) Profit and Loss Appropriation Account. (ii) Partners' Capital Accounts. (b) Veera and Sia are partners, sharing profits in the ratio of 3:2. Profit for theyear , amounting to 18,000 was distributed wrongly in the ratio of 2:3. You are required to rectify the error by passing an adjusting journal entry. (ANS: P and L appropriation account Profit 55,385) HINT: Deficiency of 10,000 profit will be credited to profit and loss appropriation account and debited to Ali s capital account Question 9 Rahul, Shiv and Kabir were three partners sharing profits and losses in the ratio of 3 : 2 : 3. As on 1 st April, 2013, their capital account balances stood at `80,000, `70,000 and 20,000 (Dr) respectively. On this date they admitted Robert into the partnership with a capital of `40,000. He is to have 1/5 th share of the profits with a guaranteed minimum share of distributable profit of `30,000. It was decided that Rahul, Shiv and Kabir would suffer any excess over 1/5 th going to Robert in the ratio of 2 : 2 : 1 respectively. The new profit sharing ratio among partners being Rahul : Shiv : Kabir : Robert = 3 : 2 : 3 : 2. The profit of the firm for the year was `1,50,000 before the following adjustments were made: Interest on 10% p.a. to be allowed to the partners. Interest on Drawings: Kabir : 2,000; Shiv: 4,000 Salary to Partners: Shiv :7,000; Robert:10,000 You are required to: Prepare a Profit and Loss Appropriation Account

6 Pass the journal entry to show the guaranteed minimum profits given to Robert. ( Ans: Profit and Loss appropriation account profit Rs. 1,20,000; Journal entry Rahul a/c Dr 2,400 Shiv a/c Dr 2,400 Kabir a/c Dr 1,200 Robert a/c Cr 6,000) Question 10 (ISC 2002) Ted, Phill and Gorden are in partnership sharing profits as 2/5 th, 2/5 th and 1/5 th and throughout half year ended 31 st December 2011 their capital accounts have remained unchanged at 60,000; 40,000 and 30,000 respectively. Their current account balances on 1 st July 2011 were: Phil : 8,550 (Dr) Gorden : 6,550 (Dr) Ted: 12,000 (Cr) During 2011, Ted withdrew 200 in the beginning of each month, Gorden withdrew 400 at the end of each month while phil withdrew 1,800 during the period of six months. Their partnership deed provides that: a) Partners are allowed interest on 5% p.a. b) Partners are allowed or charged interest on current account 4% p.a c) Interest on drawings is p.a. d) Gorden is entitled to a salary of 500 per month e) Ted is entitled to commission of 5% of the correct net profit of the firm f) Phil is entitled a commission of 5% of the correct net profit of the firm after charging such commission. During the half year ended 31 st December 2011, the net profit of the firm was 2,07,000 after charging Gordon s salary which had been debited to wages and salaries account. You are required to prepare profit and loss account of the firm. (Ans: Profit 1,83,390; Interest on drawings(1200x 6/100x 3.512) 21; 2; 30; Ted commission 10,500; Phil commission 10,000) II. PAST ADJUSTMENT ENTRY Question 1 The capital accounts of Adam and Batty stood at 40,000 and 30,000 respectively after the necessary adjustments in respect of the drawings and the net profit for the year ended 31 st December It was subsequently ascertained that interest on capital and on 5% per annum were not taken into account in arriving at the divisible profits for the year.

7 The drawings of the partners had been: Adam 1,200 drawn at the end of each quarter and Batty 1,800 drawn at the end of each half year. The net profit for the year amounted to 20,000. The partners share profits and losses in the ratio of 3:2. You are required to pass the necessary journal entries to rectify the lapse in accounting and also prepare the adjusted capital accounts of the partner. (Ans: Capital at the beginning Adam 32,800 Batty 25,600; Adjusted profit 17,215; Journal entry Adam s Capital a/c Dr 121 Batty s capital a/c Cr 121) Question 2 (SP 2017) The capital accounts of Asif and Benny stood at 30,000 and 40,000 respectively after the necessary adjustments in respect of drawings and net profit for the year ended 31 st March, It was subsequently ascertained that interest on 10% per annum and interest on 5 % per annum were not taken into account in arriving at the divisible profits for the year. The drawings of the partners had been: Asif 1,200 drawn at the end of each half year and Benny 1,200 drawn at the end of each quarter. The net profit for the year amounted to 20,000. The partners share profits and losses in the ratio of 3:2. You are required to: (i) Pass the necessary journal entries to rectify the lapse in accounting. (ii) Prepare the adjusted capital accounts of the partners. (Ans: Capital at the beginning Asif 20,400 Benny 36,800; Adjusted profit 14,400; Journal entry Asif s capital a/c Dr 1,350 Benny s capital a/c Cr 1,350; Capital account balance Asif 28,650 Benny 41,350) (b) A,B and C are partners sharing profits and losses in the ratios of 5:3:2.Their fixed capitals were Rs.3,00,000,Rs,2,00,000 and Rs.1,00,000 respectively. For the year ended 31 st March,2014 interest on Capital is credited to all p.a. instead of 8% p.a. Profit already distributed is amounting to Rs.20,000. Show the necessary Journal Entry to rectify the error and show your working clearly. (Ans: Journal entry- B s current account Dr 400 C s current account Cr 400) Question 3 (ISC 2013) Alex, John and Sam are partners in a firm. Their capital accounts on 1 st April, 2011, stood at 1,00,000, 80,000 and 60,000 respectively. Each partner withdrew 5,000 during the financial year As per the provisions of their partnership deed:

8 a) John was entitled to a salary of 1,000 per month. b) Interest on capital was to be 10% per annum. c) Interest on drawings was to be 4% per annum. d) Profits and losses were to be shared in the ratio of their capitals. The net profit of 75,000 for the year ended 31 st March, 2012, was divided equally amongst the partners without providing for the terms of the deed. You are required to pass a Sing/e Adjusting Journal Entry to rectify the error. (Show the workings clearly) (ANS: Debit Sam 9,275 Credit Alex 1,275 and Credit John 8,000; Adjusted profit 39,300) Question 4 Amit Brinda and Chaya were partners sharing profit and losses in the ratio 2:2:1. Their capitals were A- 3,00,000; B- 2,00,000 and C 1,00,000. According to the partnership deed: a) They were entitled to get interest on capital at 5% p.a. b) B was also entitled to draw a salary of 5000 p.m. c) C was entitled a commission of 5% on the profits after charging the interest on capital but before charging the salary payable to B. The net profits for the year 3,00,000 distributed in the ratio of capital without providing any of the above adjustments. Pass single adjusting entry to rectify the above error and prepare partners capital account to show the net effect. Show all the workings properly. III. VALUATION OF GOODWILL Question 1 Burton and Sons, a partnership firm is about to admit a partner and so decides to value goodwill in the books. The partners are considering three different methods of valuation as follows: a) On the basis of two years purchase of the average profits of the last five consecutive years. These were: ,000; ,000; ,000; ,000 and ,000.

9 b) On the basis of three years purchase of total super profits of the last five years. For this purpose, the normal profit is to be taken as 40,000 per annum. c) On the basis of capitalizing the average super profit. For this purpose, the following information is provided: i. Adjusted forecast maintainable profits 60,000. ii. Normal rate of return 20%. iii. Capital employed 2,00,000 iv. Capitalization rate 25%. You are required to calculate the value of goodwill on the basis of each of the three methods (a) to (c) above. (Ans: a) Goodwill Rs. 1,09,600; b) Goodwill Rs. 44,400; c) Goodwill Rs. 80,000) Question 2 Noble partnership firm is admitting a new partner and decides to value Goodwill in their books. You are requested to suggest three different methods of valuation of goodwill from the following information. a) On the basis of 5years purchase of the average net profits for the preceding 4years. The net profit for the last 3 years starting from year 2010 to year 2012 are as follows: Rs.60,000; Rs120,000; 200,000 respectively. In the year 2009 there was a loss of Rs. 20,000. b) On the basis of 3 years purchase of Super profit : (i) Average Net Profits expected in the future by the firm is Rs.36,000. (ii) The average Capital employed in the business by the firm is Rs.2,00,000. (iii) The normal rate of return expected is 10%. (iv) The remuneration of the partners is estimated to be Rs.8,000. c) On the basis of capitalizing the average super profit.: (i) Adjusted forecast maintainable profits Rs.100,000 (ii) Normal rate of return15%. (iii) Capital employed Rs. 5,00,000 (iv) Capitalization rate 25% You are required to calculate the value of goodwill on the basis of each of the three methods (a) to (c) above (Ans: a) Goodwill Rs. 4,50,000; b) Goodwill Rs. 24,000; c) Goodwill Rs. 1,00,000) Question 3 (SP 2017) Cake and Muffin are partners sharing profits and losses in the ratio of 5:4. On April 1, 2016, they admit Cookie as a new partner for 1/6 th share in the profits of the firm and the new ratio agreed upon is 3:2:1. Goodwill, at the time of Cookie s admission is to be valued on the basis of capitalisation of the average profits of the last three years. Profits for the last three years were:

10 Year ended 31 st March, ,000 (including an abnormal loss of 9,000). Year ended 31 st March, ,000 (including an abnormal gain of 8,000). Year ended 31 st March, ,000. On 1 st April, 2016, the firm had assets of 8,00,000. Its creditors amounted to 3,60,000. The firm had a Reserve Fund of 40,000 while Partners Capital Accounts showed a balance of 4,00,000. The normal rate of return expected from this class of business is 13% Cookie brings in 2,00,000 for her capital but is unable to bring in cash her share of goodwill. You are required to calculate Goodwill of the firm (Show your workings clearly). (Ans: Good will Rs. 60,000; Average profit 65,000; Capitalised value of the firm 5,00,000; Net assets 4,40,000)

Accountancy Class-XII Assignment

Chapter 1 Accounting For fundamentals Accountancy Class-XII Assignment 2017-18 Q1. Lata and Mamta are partners with capital of Rs. 3,00,000 and Rs. 2,00,000 respectively sharing profits as Lata 70% and