FUNDAMENTALS OF PARTNERSHIP
INTEREST ON DRAWINGS
CASE I Product method for Irregular Drawings:
When partners withdraw the Different Amount on Different Dates.
Rate 1 Interest on Drawings = Sum of Products of Drawings x 100 x 12
Product of Drawings = Amount of Drawings x No. of Months for which it has been used 1. A is partner in a firm. For the year ending 31.12.2005, A’s drawings were :
Rs. 1st March 1,000 1st May 750 1st July 1,250 1st September 500 1st November 500
Interest on drawings is charges @10% per annum. Calculate interest on drawings of A.
2. In a partnership, partners are charged interest on drawings at 15% p.a. During the year ended 31st Dec.,
2006, a partner drew as follows:
Feb. 1 Rs. 2,000
May 1 Rs. 5,000
June 30 Rs. 2,000
Oct. 31 Rs. 6,000
Dec. 31 Rs. 2,000
What is the interest chargeable to the partner?
3. During the year ended 31-12-2005, a partner made the following drawings:
January 21 Rs. 2,000; April 1 Rs. 5,000; July 31 Rs. 4,000; December 1 Rs. 3,000; December 31 Rs. 2,000.
Calculate interest on drawings when it charged @10% p.a.
CASE II When a Fixed Amount is Withdrawn on a Fixed Date:
1. If the Partners withdraw same Amount in the beginning of every month for full year.
Rate 1 1 Interest on Drawings = Total Drawings x 100 x 6 2 x 12
2. If the Partners Withdraw same Amount in the Middle of Every Month for full year.
Rate 1 Interest on Drawings = Total Drawings x 100 x 6 x 12
Interest on Drawings = Total Drawings x 100 x 5 2 x 12 4. When the same Amount is Withdrawn at the beginning of Each Quarter.
Rate 1 1 Interest on Drawings = Total Drawings x 100 x 7 2 x 12 5. When the same Amount is Withdrawn at the end of Each Quarter.
Rate 1 1 Interest on Drawings = Total Drawings x 100 x 4 2 x 12 6. If the Partners Withdrawn at the end of Each Quarter.
Rate 1 1 Interest on Drawings = Total Drawings x 100 x 3 2 x 12 7. If the Partners Withdraw same Amount at the End of Every Month for 6
Months Regularly and Books are Closed Half Yearly Ending. Rate 1 1 Interest on Drawings = Total Drawings x 100 x 2 2 x 12 8. If Partners Withdraw same Amount the middle of every month for 6
months regularly and books are closed half yearly ending.
Rate 1 Interest on Drawings = Total Drawings x 100 x 3 x 12
CASE III If the Partners Withdraw Amount during the year. But Date of Drawings is not given:
(a) If interest on Drawings is charged @ 10% p.a.
10 6 Interest on Drawings = Total Drawings x 100 x 12 (b) If Interest on Drawings is charged @ 10% p.a.
10 Interest on Drawings = Total Drawings x 100
4. A and B are partners in a firm. They share profits and losses equally. Their monthly drawings are Rs. 2,000 each. Interest on drawings is to be charged @ 10% p.a.
Calculate interest on A’s drawings for the year 2005 assuming drawings are made (i) in the beginning of every month, (ii) in the middle of every month, and (iii) at the end of every month.
(Ans: (i) Rs. 1,300; (ii) Rs. 1,200; (iii) Rs. 1,100)
5. Calculate interest @ 8% p.a. on drawings made by the following partners: (a) Raj withdrew Rs. 600 at the end of every month. (b) Deepak withdrew Rs. 700 in the beginning of every month. (c) Mukesh withdrew Rs. 800 in the mid of every month.
(Ans: Rs.264;Rs.364;Rs.384)
6. How will you calculate interest on drawings in following cases? (i) Rs. 500 drawn on last day of every month.
(ii) Rs. 500 drawn on 15th of every month?
(Ans: (i) int. = 6000 x Rate of Int. / 100 x 5 1/2 x 1/12 (ii) int. = 6000 x Rate of Int. / 100 x 6/12)
7. A partner makes a drawing of Rs. 1,000 p.m. Under the Partnership Deep, interest is to be charged at 15% p.a. What is the interest that should be charged to the partner?
(Ans. Rs. 900) 8. A and B are two partners sharing profits equally. A drew regularly Rs. 400 at the end of every month
for the six months ending 30th June, 1992. Calculate interest on drawings at 5% p.a.
(Ans: Interest on Drawings Rs. 25)
9. A and B are two partners sharing profits equally. A drew regularly Rs. 400 at the beginning of every month for the six months ending 30th June, 1992. Calculate interest on drawings at 5% p.a.
10. Ram and Mohan, two partners, draw for private use Rs. 6,000 and Rs. 4,000. Interest is chargeable @ 6% p.a. on the drawings. What is the interest on Drawings? Also calculate interest on Drawings if interest is chargeable @ 6%.
(Ans: Ram Rs. 180 and Mohan Rs. 120; Ram Rs. 360 and Mohan Rs. 240)
11. A and B are partners sharing profits and losses equally with capitals of Rs. 30,000 and Rs. 20,000 respectively.
Their drawings during the year are as follows:
A’s drawings on 31-3-1992 Rs. 500 30-4-1992 Rs. 600 01-7-1992 Rs. 450 1-12-1992 Rs. 1,400
B drew Rs. 300 at the end of each month. The deed provides interest on capitals and drawings at 6% p.a.
Calculate interest on capitals and drawings.
(Ans: Int. on Capitals: A Rs. 1,800 : B Rs. 1,200 ; Interest on Drawings: A Rs. 67; B Rs. 99)
11(B). B and M are partners in a firm. They withdrew Rs. 48,000 and Rs. 36,000 respectively duri9ng the year evenly at the middle of every month. According to the partnership agreement, interest on drawing is to be charged @ 10% p.a. Calculate the interest on drawings of the partners using appropriate formula.
(Ans: Rs. 2,400 ; B Rs. 1,800) (CBSE Sample Paper 1,2003)
INTEREST ON CAPITAL
12. Rajendra Mohan and Radhey Mohan are partners and they had Rs. 40,000 and Rs. 60,000 in capital accounts as on 1st January, 1990 respectively. Rajendra Mohan paid in further Rs. 5,000 on 1- 8-90
and another Rs. 5,000 on
15-11-90.Compute the interest on capital to be allowed to Rajendra Mohan assuming the rate of interest to be 6%
(Ans: Total Interest to be paid on Rajendra Mohan’s Capital Rs. 2,562.50) (CBSE Comptt. 1991)
13. A and B started business on 1.1.2001 with capitals of Rs. 60,000 and Rs.40, 000 respectively. During the year, A introduced Rs. 10,000 to the firm as additional capital on 1.7.2001. They withdrew Rs .500 per month for the house expenses in lieu of profit . Interest on capital is to be allowed @ 10% per annum. Calculate the interest payable to A and B for the year ending 31.12.2001.
(Ans. Rs. 6,500; Rs. 4000)[C.B.S.E.Comptt.1991]
14.(a) X and Y contribute Rs. 20,000 and Rs. 10,000 respectively. They decide to allow interest on capital @6% p.a. Their respective share of profits is 2:3 and the business profit (before interest) for the year is Rs.1, 500. Show the distribution of profits (a) where there is no agreement except for interest on capitals, and (b) where there is a clear agreement that the interest on capitals will allowed even if it involves the firm in loss.
[Ans. (a) int. on capital: A Rs.1,000; B Rs.500;(b) Loss: A Rs. 120;B Rs . 180] 14.(b) A and B are partners sharing profit or loss in the ratio of 3:2 having capital balances of Rs.50,000 &
Rs.40,000 on 1.4.2003. On 1st July, 2003 A introduced Rs.10,000 as his additional capital whereas B
introduced only Rs. 1,000. If the interest on capital is allowed to partners @10% p.a. calculate the interest on capital if the financial year closes on 31st of march every year.
(Ans. Rs.5,750;Rs.4075)[C.B.S.E Sample Paper 11, 2003]
INTEREST ON LOAN
15. A and B are Partners in a firm sharing profits in the ratio of 3:2. They had advanced to the firm a sum of Rs.30,000/- as a loan in their profit sharing ratio on 1st July 2005. The
partnership deed cis silent on the question of interest on loan from partners . Compute the interest payable by the firm to the partners ; assuming the firm closed its books on 31st dec.
16. M and N are partners in a firm. M has given a loan of Rs.8, 000 to the firm on 1st April 2004.
The partnership deed is silent upon the question of provision of interest on partners’ loan . Compute the amount of Interest payable of the loan advanced by M to the firm assuming the Books are closed on 31st December each year.
(Ans. Rs. 360)[CBSE 1998]
DISTRIBUTION OF PROFITS
If A’s Interest on capital Rs.5,000, B’s Interest on capital Rs. 3,000 and B’s salary Rs.6,000. Case 1. Profit for the year before charging Interest on capital and B’s Salary Amounted to Rs.25, 000.
OR
Net Profit for the year amounted to Rs. 25,000.
Dr. Profit & Loss appropriation Amount
Cr.
For the year ending …………..
Particulars Amount Particulars Amount
Interest on capital A/c : A 5,000 B 3,000 B’s Salary A/c Profit transferred to : A’s Capital A/c 5,500 B’s Capital A/c 5,500
8,000 6,000 11,000 25,000
Profit Loss A/c (profit for the year ) 25,000
25,000
Case 2. Profit for the year before charging Interest on capital but after charging B’s Salary Amounted to Rs. 25,000.
Dr. Profit & Loss Appropriation Amount Cr.
Particulars Amount Particulars Amount
B’s Salary A/c Interest on Capital A/c: A 5,000 B 3,000 Profit transferred to : A’s Capital A/c 8,500 B’s Capital A/c 8,500
6,000 8,000 17,000 31,000
Profit and Loss A/c
(Profit for the year ) (25,000+6,000) 31,000
31,000 17. A and B are partners with capitals of Rs. 60,000 and Rs. 20,000 respectively on 1st Jan, 2005.
The trading profit (before taking into account the provisions of the deed) for the year 2005 was Rs. 24,000.Interest on capitals is to be allowed at 6% per annum . B is entitled to salary of Rs. 6,000 per annum. The drawings of the partners were Rs.6, 000 and Rs. 4,000; the interest for A being Rs. 200 and for B Rs.100.Prepare Profit and Loss appropriation A/c .
(Ans: Rs. 13,500) 18.(a) On 1st jan,2005 , X and Y entered into partnership contributing Rs.20,000 and Rs.15,000
respectively and sharing profits in the ratio of 3:2. Y is to be allowed a salary of Rs. 4,000 per year. Interest on capital is to be allowed at 6 % per annum . During the year, X withdrew Rs. 3,000 and Y Rs. 6,000, interest on the same will be 6%. Profit in 2005 before the above-noted adjustment was Rs.10,560. Prepare profit and Loss Appropriation A/c .
(Ans: Profit : Rs. 5,000)
18.(b) A and B are partners in a firm , sharing profits and Losses in the ratio of 3:2.The Profit and Loss Account of the firm for the year ending March 31,2005 shows a net profit of Rs.1,51,900
Prepare the Profit and Loss Appropriation Account by taking into consideration the following Information:
(i) Partners’ Capitals on April 1.2001: A—Rs.32, 000; B—Rs.12, 000.
(ii) Partners’ drawings during the year amounted to A—Rs.14, 000; B –Rs.12, 000. (iii) Interest on Capital was allowed @10 % p.a.
(iv) Interest on drawings was to be charged @ 10 % p.a. (v) Partners’ salaries: A Rs .14, 000 and B Rs. 12,000.
(Ans:Profit1,20,000)
19. Amit and Vijay started a partnership Business on 1st Jan, 2005.Their capital contribution were
Rs.2, 00,000 and Rs.1, 50,000 respectively. The partnership deed provided inter alia that : (i) Interest on capital at 10% p.a.
(ii)
Amit to get a salary of Rs. 2,000 p.m. and Vijay Rs. 3,000 p.m. (iii) Profits are to be shared in the ratio of 3:2.The profits for the year ended 31st December, 2005 before making above appropriation were
Rs. 2, 16,000. Interest on drawings amounted to Rs.2, 200 for Amit and Rs.2, 500 for Vijay. Prepare Profit and Loss Appropriation Account and Partner’s Capital Account.
(Ans: Profit :Amit Rs.75,420; Vijay Rs. 50,280)(CBSE. Annual Exam (Delhi),1992,set 3)
20. Kaku and Polu started a Partnership business on 1st Jan, 1985. They contributed Rs. 80,000 and
Rs.60, 000 respectively, as their capitals. The terms of the partnership agreement are as under: (i) Interest on capital and drawing @ 12 % per annum.
(ii) Kaku and Polu to get a monthly salary of Rs. 2,000 and Rs. 3,000 respectively. (iii) Sharing of profit or Loss will be in the ratio of their capital contribution.
The Profit for the year ended 31st December, 1985, before making above appropriation was Rs.
1, 00,300. The drawing of Kaku and Polu were Rs. 40,000 and Rs. 50,000 respectively. Interest on drawings amounted to Rs. 2,000 for Kaku and Rs. 2,500 for Polu.
Prepare profit and Loss appropriation account and partners’ capital accounts assuming that their Capitals are fluctuating.
(Ans: Profit Kaku Rs.16,000;Polu Rs.12,000) (Delhi S.S.C.E,1986)
21. A and B formed a partnership on 1st Jan,1992. They agreed that out of profits:
(i) A should receive a salary of Rs.500 per month. (ii) Interest on capital should be allowed @ 6 % p.a. and (iii) Remaining profits be divided equally .
A contributed a capital of Rs. 50,000 on 1st jan,1992 but B brought in his capital of Rs.1,00,000
On 1st April,1992. During the year, the drawing were A Rs.15,000 and B, Rs 20,000. Profits
Before the above noted salary and interest were Rs.50,000. Prepare Profit and Loss Appropriation Account and capital account of the partners and Partner’s Current Account.
(Ans: Current A/c :A, Rs. 12,250; B, Rs.2,750)
22.(a) A,B and C are partnership with respective capitals of Rs. 20,000. Rs. 15,000 and Rs.10,000. B and C are entitled to annual salaries of Rs.1,000 and Rs. 1,500 respectively payable before division of profits. Interest on capital is allowed at 5 percent per annum , but interest is not Charged on drawings of the first Rs.6,000 divisible as profit in any year, A is entitled to 50 per Cent ,B to 30 percent and C to 20 percent. Annual profits in excess of Rs.6,000 are divisible Equally. The profit for the year ended 31st December ,1992 was Rs.10,050 after debiting
Partner’s salaries but before charging interest on capital . The partner’s drawings for the year were :
A Rs. 4,000 ; B Rs.3,750 and C Rs. 2,000. The balance on the partner’s current accounts on 1st
Jan,1992 were A Rs.1,500 credit ; B Rs. 250 credit ; C Rs. 500 debit .
Prepare Profit and Loss Appropriation Account and the partner’s Current Accounts for the year 1992 and Partners Capital Account.
(Ans: Profit: A Rs. 3,600; B Rs. 2,400; C Rs. 1,800)
22.(b) Pappu and Munna are partners in a firm sharing profit in the ratio of 3:2. The partnership
deed provided that Pappu was to be paid salary of Rs. 2,500 per month and Munna was to get a commission of Rs.10,000 per year. Interest on capital was to be allowed @ 5 % per annum and interest
on drawings was to be charged @ 6 % per annum. Interest on Pappu’s drawings was Rs.1,250 and on Munna’s drawings Rs.425. Capital of the Partners were Rs.
2,00,000 and Rs.1,50,000 respectively, and were fixed. The firm earned a profit of Rs.90,575 for the year ended 31.03.2004.
Prepare Profit and Loss Appropriation Account of the firm .
(Ans: Profit Rs. 34,750) (CBSE 2005) 23. A,B and C are partners sharing profits and Losses in the proportion of A ½,B 3/10, C 1/5 after
providing for interest at 5 % on their respective capitals, viz. A Rs. 50,000, B Rs. 30,000 and C Rs. 20,000 and allowing B and C a salary of Rs. 5,000 each p.a.. During the year 1992. A has drawn Rs. 10,000 and B and C in addition to their salaries have drawn Rs. 2,500 and Rs 1,000 respectively . The profit and Loss A/c for the year ended 31st Dec. 1992 showed a net profit of Rs. 45,000 before
charging (1) interest on capital, and (2) partners salaries. On 1st Jan, 1992 , the balances in the Current
A/c s of the partners were A (Cr.) Rs. 4,500 , B (Cr.)Rs. 1,500 and C (Cr.)Rs. 1,000. Interest is not charged on drawing on Current Account Balances . Show the Partners Capital and Current Accounts as at 31st December ,1992 after division of profits in accordance with the partnership agreement .
( Ans: Balances in Current A/c: A(Cr.)Rs.12,000;B(Cr) Rs.9,500;C(Cr.) Rs.7,000)
24. Ali and Bahadur are partners in a firm sharing profits and Losses as ali 70 % and Bahadur 30 %. Their Capital Accounts, as on 1st April,1992 stand as Ali Rs. 25,000 and Bahadur Rs.
20,000 . The partners are allowed 5% per annum by way of interest on capitals. The drawings of the partners during the year ended 31st march ,1993 amounted to Rs.3,500 and
Rs. 2,500 respectively.
The profit during the year , before charging interest on capital and annual salary of Bahadur at the of Rs. 3,000 , amounted to Rs. 40,000, 10 % of this profit is to be kept in a Reserve account. Prepare Profit and Loss Appropriation Account and Current Account.
(Ans: Ali’s Current A/c Bal. Rs 19275; Bahadur’s Current A/c Rs.10,725 )
25. A and B are partners sharing profits in proportion of 3:2 with capitals of Rs.40,000 and Rs. 30,000 respectively. Interest on capital is agreed at 5 % p.a. B is to be allowed an annual salary of Rs. 3,000 which has not been withdrawn . During 1991, the profit for the year prior to calculation of interest on capital but after charging B’s salary amounted to Rs. 42,000. A provision of 5 % of this amount is to be made in respect of commission to the manager . Prepare an Account showing the allocation of profits.
(Ans: A & B each gets Rs.66,614 as profit and A gets Rs. 2,250 as interest on loan ) 26. Mahesh and Ramesh are partners with capital of Rs. 50,000 and Rs. 60,000 respectively . On
1st jan,1998, Mahesh gives a loan of Rs 10,000 and Ramesh introduced Rs.20,000 as a
additional capital. Profit for the year ending 31st march 1998 was Rs. 15,200. There is no
partnership deed . Both Mahesh and Ramesh expect interest @ 10 % p.a. on the loan and additional capital advanced b them. Show how the profit would be divided ? Give Reason ?
(Ans. Profit Rs. 7,525 each ) (CBSE 2001 Comptt.) PAST ADJUSTMENT
CASE I: Omission of Interest on Capital :
Ex . A,B,C and D are partners sharing profits and losses in the ratio of 4:3:3:2 and their respective capitals on 31st December, 2005 were Rs. 3,000, Rs 4,500 ,Rs. 6,000 and Rs.
4,500. After closing and finalizing the accounts, it was found that interest on capital @ 6% p.a was omitted . Instead of altering the signed accounts ,it was decided to pass a single adjustment entry on 1st Jan, 2006 crediting or debiting the respective partners accounts .
sol: A’s Capital A/c …..Dr. 180
C’s Capital A/c 90 C’s Capital A/c 90
(Being the adjustment entry due to omission of interest on capital)
Working :
Interest on Capital to be
A
Credited @ 6 % p.a
Excess Profit taken back in profit sharing ratio
-- 180 360 ---- 270 270 ---- 360 270 ---- 270 180 -- 1080 1080
Difference (Net Effect) 180 -- -- -- -- 90 -- 90
27. A,B and C are partners. Theirs capital accounts on 1st Jan,1992, A Rs . 3000 ; B Rs.5,000 ,C Rs.
8,000 and D Rs. 10,000. After the accounts for the year have been Prepared , it is discovered that interest at 5 % p.a. as Provided for in the partnership agreement has not been credited to the Partners capital accounts before distributing profits. Instead of altering the signed Balance Sheet it is decided to make an adjusting entry at the beginning of the next year . Give the Necessary journal entry.
(Ans: Dr. A & B Rs.175 & Rs. 75 & Cr. C & D Rs . 75 & Rs .175) (SSE Delhi )
28. On 31st December 1995 , After closing the capital accounts, capitals of X,Y and Z stood at Rs.
80,000, Rs.60,000 and Rs. 40,000 respectively . It was subsequently discovered that interest @ 5 % p.a. on capital at the beginning of the year was left out. Their drawing during the year were Rs. 20,000, Rs. 15,000 and Rs. 9,000 respectively . Profit for the year was Rs. 1,20,000. Partners share profit as 3:2:1. Give necessary adjustment entry and show the working notes.
(Ans: Dr. X Rs. 600, Cr .Y Rs. 17. Cr. Z Rs.583) (CBSE AI 1999)
29. A, B and C were partners in a firm sharing profits in the ratio of 5:4:3. After division of the profit for the year ended 31.3.2001 their capital were Rs 5,00,000;Rs.4,00,000; and Rs.3,00,000 respectively . During the year they withdrew Rs . 30,000 each . The Profit of the year was Rs. 1,20,000. The partnership deed provided that interest on capital will be allowed @ 10 %p.a . While preparing the final accounts interest on capital was not allowed .
You are required to calculate the capitals of A,B and C as on 1.4.2000 and pass the necessary Adjustment entry for providing interest on capitals. Show Your workings clearly.
(Ans: Dr. A Rs . 750,Cr. Rs.750) (CBSE delhi 2002)
30. The net trading profits of X, Y and Z for the year ended 31st December 1992 was Rs.60,000
and the same was distributed amongst the partners X,Y and Z in their agreed ratio of 3:2:1. It was subsequently discovered that the under-mentioned transactions were not passed through Accounts .
(i)
Interest on capital @ 5 % p.a.(ii) Interest on drawings amounting to X Rs.700,Y Rs.500, Z Rs. 300. (iii) Partnership salary --- X Rs. 10,000 and Y Rs.1,500 p.a.
(iv) An agreed commission of Rs. 6,000 payable to X arising out of a special transaction of the firm .
The capital accounts of partners were fixed X Rs.1,00,000, Y Rs. 80,000 and Z Rs. 60,000. Give a single journal entry to record necessary adjustment.
(Ans: Dr. Y’s Current A/c by Rs. 600 and Z’s Current A/c by Rs. 2,900 and Cr. X’s current A/c by Rs. 3,500)
31.
Mohan , Vijay and Anil are partners , the balances on their capital accounts being Rs. 30,000 Rs.25,000 and Rs. 20,000 respectively . In arriving at these figures , the profits for the year ended December 31,1992 Rs. 24,000 had already been credited to partners in the proportionin which they shared profits. Their drawings were Rs. 5,000(Mohan ), Rs. 4,000(Vijay) and Rs. 3,000(Anil) in 1992. Subsequently the following omission were noticed and it was decided to bring them into account:
(i) Interest on capital at 10 % per annum .
(ii) Interest on drawings Mohan Rs. 250, Vijay Rs. 200, and Anil Rs. 150.
Make the necessary corrections through a journal entry a3nd show your workings clearly .
(Ans: Journal :Dr. Anil by Rs. 550 and Cr. Mohan by Rs. 550;Corrected profit transferred to each partners Rs. 6,100)
Ex. Ram , Mohan and Sohan sharing profits and losses equally have capital Rs. 1,20,000, Rs.90,000 an Rs. 60,000. For the year 1992, Interest was credited to them at 6 % instead of 5 %. Give adjusting journal entry .
32.
P,Q and R are partners in a firm sharing profits and losses in the ratio 2:5:3. Their –fixed capital were Rs. 2,00,000, Rs.3,00,000 and Rs.3,00,000 respectively .For the year 20X1 Interest on capital was credited to them @ 12 % instead of 10 % . Show your working notes clearly and pass the necessary adjusting entry .(Ans: Dr. P & R Rs.800 and Rs. 1200; Cr. Q Rs. 2000) (CBSE 1997)
33. Ram and Mohan were partners in a firm sharing profits in 3:2 ratio . Their capitals were: Ram Rs.1,20,000 and Mohan Rs. 90,000. For the year 1999 interest on capital was credited to them @ 6 % instead of 5 %. Give the necessary adjusting entry for the rectification of the error . Show also the working notes clearly.
(Ans: Mohan Rs. 60(Dr.), Ram Rs.60(Cr.))[CBSE 2000 Comptt.] Case III: If Interest on Capital allowed at lower rate Interest :
34. P and Q were partners in a firm sharing profits in 7:3 ratio. Their capitals were P Rs.5,00,000 and Q Rs. 8,00,000. For the year 20X1 interest on capital was credited @ 7% instead of 11%. Show the necessary adjusting entry for the rectification of the error .Also show the working notes clearly .
(Ans: Dr. P Rs. 16,400 and Cr. Q Rs. 16,400)(CBSE 2000)
35. A,B and C are partners in a firm sharing profits and losses in the ratio of 2:2:1. Their capital (Fixed) are Rs. 1,00,000. Rs.,80,000 and Rs.70,000 respectively . For the year 1989, interest on capital was credited to them @ 9 % p.a. instead of 12 %. Give adjusting journal entry .
(Ans: Dr. B Current A/c Rs.600 and Cr. C’s current A/c Rs.600) Case IV: Change in Profit Sharing Ratio with Retrospective Effect:
Ex. The firm of X, Y and Z who have been sharing profits in the ratio of 2:2:1 respectively , Have existed fro some years. Z wants that he should share equally on the profits with X and Y and he further wants that change in the profit –sharing ratio should come into effect retrospectively from the last 3 years. X and Y have no objection to this . The profits for the last three
years were Rs. 24,000;Rs.23,000 and Rs. 28,000. Show the adjustment of profit for the last three years by means of journal entries .
36.
Sachin, Kapil and Rashmi have been sharing profits in the ratio of 3:2:1 respectively. Rashmiwants that she should share equally in profits with Sachin and Kapil. She further wants that change in profit sharing ratio should be applicable retrospectively for the last three years .
Other partners have no objection to this . The profits for the last three years were Rs. 60,000, Rs.47,000 and Rs.55,000.
Record the adjustment by means of journal entry. Give workings.
(Ans: Dr. Sachin by Rs. 27,000 and Cr, Rashmi by Rs.27,000)
37. Jagdish, Ashish and Deepak are partners sharing profit ratio of 3:2:1. The firm has been in existence for many years. Now the partners decide to share profits in the ratio of 2:2:1.They have also decided that the change shall be carried out with retrospective effect from 1995. The profits and losses during the last few years have been 1994 Rs.16,000,1995 Rs. 12,000, 1996 Rs. 14,000, 1997 Rs. 19,000 and 1998(loss)Rs. 15,000. Show the adjustment of the profit for the last 4 years by means of a single adjustment entry .
(Ans: Jagdish Rs.3,000(Dr.), Ashish Rs.2,000(Cr.),Deepak Rs. 1,000(Cr.) (CBSE 2001) Case V: Manager to be Treated as a Partner with Retrospective Effect :
Ex: A and B are partners sharing profits and losses in the ratio of 3:2. At the end of the year, i.e., on 31st December ,1992, They decided to take their manager C into partnership. As manager
C was getting annual salary of Rs 4,500.He had also advanced Rs.30,000 to the firm by way of a loan on which he is getting interest @ 10 % p.a. During the three years, firm’s profit after adjusting salary to C, interest on loan and interest on the capital of the partners were:
1991 Loss Rs.20,000
1992 Profit Rs.60,000
According to the new agreement , C is to be given annual salary of Rs.3,500 and 1/5th share
in the profits of the firm . C’s loan shall be treated as his capital from the beginning and similar to other partners , his capital will carry interest @ 6% p.a. Record the necessary journal to give effect to the above arrangement.
38. A and B are partners sharing profits and losses in the ratio of 3:2. They employed C as their manager to whom they paid of Rs.750 p.m . C had deposited Rs.20,000 on which interest was payable @ 9% per annum . At the end of 1992(after division of the year’s profits), it was decided that C should be treated as partner with effect from jan.1.1989 with 1/6th share of
profit . his deposit being considered as capital carrying interest at 6 % per annum like capital of other partners. The firm’s profit and losses after allowing interest on capitals were as follows:
1989 Profit Rs. 59,000
1990 Profit Rs. 62,600
1991 Loss Rs. 4,000
1992 Profit Rs. 78,000
Record the necessary journal Entries to give effect to the above .
(Ans: Debit A by Rs. 360, B by Rs.240 and Credit C , by Rs. 600) (S.S.C 1980)
39. X and Y are partners sharing profit and losses in the ratio of 3:2. At the end of the year, i.e.., on 31st December ,1998, they decided to take their manager Z into partnership. As manager
Z was getting annual salary of Rs.3,000.He had also advanced Rs. 20,000 to the firm by way of a loan on which he is getting interest @ 10% per annum. During the three years, firm’s profits after adjusting salary to Z, interest on loan and interest on the capital of the partners were :
1996 Profit Rs.30,000
1997 Loss Rs.15,000
1998 Profit Rs. 45,000
According to the new agreement Z is to be given annual salary of Rs.2,500 and 1/5th share in
the profit of the firm. Z’s loan shall be treated as his capital from the beginning and similar to other partners, his capital will carry interest @ 6% per annum .Record the necessary entries to give effect to the above arrangement . (Ans: X Rs.5,328(Dr.),Y Rs. 3,552(Dr.),Z Rs8,880(Cr.))
GUARANTEE OF PROFIT TO A PARTNER
e.g. A,B and C are partners in the ratio of 3:2:1. Guarantee to Mr. C minimum profit of Rs.1,000. Case 1. If divisible profit Rs.15,000
Particulars Amount Particulars Amount
Profit Transferred to : A’s Capital A/c 7,500 B’s Capital A/c 5,000
C’s Capital A/c 2,500 15,000
Case 2. If divisible profit Rs.3,600
Particulars Amount Particulars Amount
Profit Transferred to:
A’s Capital A/c 1,800 - C’s deficiency borne 240 1,560 B’s Capital A/c 1,200
- C’s deficiency borne 160 1,040 C’s Capital A/c 600 + deficiency recovered from A 240
A bears = 400 x 3/5 =240; B bears = 400 x 2/5 =160
Case 3. If divisible profit Rs.3,600 and any deficiency will be borne by A and B in the ratio of 1:3
Particulars Amount Particulars Amount
Profit Transferred to:
A’s Capital A/c 1,800 - C’s deficiency borne 100 1,700 B’s Capital A/c 1,200
- C’s deficiency borne 300 900 C’s Capital A/c 600 + deficiency recovered from A 100
+ deficiency recovered from B 300 1,000 3,600
(i) P & L Appropriation A/c. …Dr.3,600 (ii) A’s Capital A/c ..Dr. 100
A’s Capital A/c 1,800 B’s Capital A/c ..Dr. 300 B’s Capital A/c 1,200 C’s Capital A/c ..Dr. 400
C’s Capital A/c 600
(Being the division of profit if there is no guarantee) (Being the deficiency of C is borne by A and B)
40. A,B and C were partners in a firm sharing profits in the ratio in the ratio of 2:2:1. C was guaranteed to be given a profit of Rs.50,000 per year. Deficiency, if any , on that account shall be borne by A and B in the ratio of 3:2. The net profit of the firm for the year ended 31.3.2004 was Rs. 2,00,000.
Prepare Profit and Loss Appropriation Account of A,B and C .
(Ans: A Rs.74,000; B Rs.76,000; C Rs.50,000) (CBSE 2005)
41. A and B are partners in a firm sharing profit in the ratio of 2:1. On 1-4-2002 they decide the admit C for 1/5 share in profits with a guaranteed amount of Rs.25,000 per annum . A under took to meet the liability arising out of the guaranteed amount to C . The firm earned a profit of Rs. 75,000 for the year ended March 31,2003.
Prepare Profit and Loss Appropriation Account .
(Ans. A Rs. 30,000; B Rs.20,000; C Rs.25,000) (CBSE 20004)
42. A, B and C are partners sharing profits in the ratio of 5:4:1. C is given a guarantee that his share in any year will not be less than Rs.5,000. The profit for the year ending 31st march 1995
amounts to Rs.35,000 . Amount of shortfall in the profits given to C will be Borne by A and B in the ratio of 3:2. Pass necessary journal entry regarding deficiency borne by A and B.
(Ans: A Rs.900(Dr.), B Rs. 600(Dr.),C Rs.1,500(Cr.))[CBSE 1997]
43. Ram ,Mohan and Sohan are partners with capitals of Rs. 10,000, Rs. 5,000 and Rs. 2,000 respectively . After providing interest on capital at 6% per annum , the profit are divisible as follows:
Ram ½, Mohan 1/3 and Sohan 1/6. But Ram and Mohan have guaranteed that Sohan’s share shall not amount to less than Rs. 500 in any one year.
During the year 1992, Ram and Mohan have each withdraw Rs.1,000 and sohan Rs.500. the net profit for the year before providing interest on partners capital ,was Rs.2400. You are required to show the current Accounts of the partners.
(Ans: Balances of current A/c :Ram Rs.128(Cr.);Mohan ,Rs.348(Dr.);Sohan,Rs.120(Cr.))
44. A,B and C entered into partnership on 1st jan ,1992 to share profit and losses in the ratio of
5:3:2. A, however , personally guaranteed that C’s share of profit, after charging interest on Capital @ 5% p.a.. would not be less than Rs.30,000 in any year . The capital was provided as follows:
A Rs.3,20,000, B Rs.2,00,000 and C Rs.1,60,000.
for interest on capitals. Show the Profit & Loss Appropriation Account .
(Ans: Share of profit :A Rs.57,500, B Rs.37,500, C Rs.30,000)
45. Three Chartered Accountants A,B and C form a partnership, profit being divisible in the ratio of 3:2:1 subject to the following :
(i) C’s share of profits guaranteed to be not less than Rs. 15,000 per annum
(ii) B gives guarantee to the effect that gross fee earned by him for the firm shall be equal to his average gross fee of the preceding five years when he was carrying on profession
alone (which average works out at Rs.25,000).
The profit for the first year of the partnership is Rs.75,000. The gross fees earned by B for firm Rs.16,000. You are required to show profit and loss Appropriation Account (After giving effect to the above )
(Ans: A’s share Rs.41,400, B shareRs.18,600 and C’s share Rs.15,000)
46. A,B,C and D are partners in a firm . Their Capital Accounts stood at Rs. 60,000, Rs.30,000, Rs.30,000 and Rs.20,000 respectively on 1st jan ,1992. They share profit and losses in the
proportion of 5:3:2:2. D’s share of profit (excluding interest on capital )is guaranteed by the firm to be not less than Rs.16,000 per annum .C’s share of profit (including interest on capital and salary)is guranteed by A at a minimum of Rs.26,000 p.a . The profit for the year ended 31st
December 1992,amounted to Rs .91,000 before considering interest on capital @ 5% per annum and salary to C @ Rs.1,000 per month which under the partnership deed are allowable.
Prepare the profit and loss Appropriation Account for the year ended 31st december1992.
(Ans: Share of profit: A Rs26,700; B Rs16,800; C Rs. 12,500;D Rs.16,000)
47. A,B and C entered into partnership on 1st April 1990, to share profits & losses in the ratio of
4:3:3:,. A , however , personally guaranteed that C’s share of profits after charging interest on capitals @ 5 % p.a. would not less than Rs.40,000 in any year. The capital contributes were: A—Rs.3,00,000 , B – Rs. 2,00,000 and C –Rs.1,50,000. The profit for the year ended on 31st
March , 1991 amounted to Rs.1,60,000. Show the profit & loss Appropriation Account.
(Ans: Profit: A Rs. 49,250;B Rs.38,250 ;C Rs.40,000) (CBSE Delhi 1992)
48. X and Y share profit & losses in the ratio of 3:2. As from 1st jan,1992, they admit Z who is to
have one-tenth share of the profit with a guaranteed minimum of Rs. 7,500. X and Y continued to share profit as before but agree to suffer any excess over 1/10th going to Z. The profit of the
firm in respect of the year are Rs. 50,000. Prepare Profit and Loss Appropriation Account.
(Ans: Profit: X Rs.25,000;Y Rs.17,000;Z Rs. 7,500) MISCELLANEOUS PROBLEMS
49. P,Q and R are partners in the firm. Their capital accounts stood at Rs.30,000, Rs.15,000 and Rs. 15,000 respectively on 1st January ,20X1.
As per the provision of the deed :
(i) R was to be allowed a remuneration of Rs. 3,000 p.a. (ii) Interest at 5% p.a was to be provided on capital
(iii) Profits were to be divided in the ratio of 2:2:1..Ignoring the above terms , net profit of Rs. 18,000 for the year ended 20X1 was divided among the three partners equally.
Pass an adjustment entry to rectify the error . Show the working clearly.
(Ans: Dr. Q Rs.450 and Cr. P & R Rs.300 and 150) (CBSE 1998 Delhi )
50. A,B and C were partners in a firm . On 1-1-2001 their capitals stood at Rs.50,000 Rs.25,000 and Rs.25,000 respectively . As per the provisions of the partnership deed :
(a) C was entitled for a salary of Rs.1,500 p.m.
(b) Partners were entitled to interest on capital at 5% p.a. (c) Partners were to be shared in the ratio of capitals.
The net profit for the year 20X1 of Rs.45,000 was divided equally without providing for the above terms . Pass an adjustment entry to rectify the above error .
51. X,Y and Z partners have omitted interest on capital for three years ended 31st December ,1992.
Their fixed capitals on which interest is based were throughout X Rs. 20,000,Y Rs.16,000; and Z Rs.14,000. Interest is to be allowed at 5% per annum . Their profit –sharing ratios were : 1990—1 :2:2; 1991—5:3:2; 1992—4:5:1. Give the necessary adjusting entry .
(Ans: Dr. Y’s Current A/c by Rs.600 and Cr. X’s Current A/c by Rs.250 and Z’s Current A/c by Rs.200)
52. A,B and C are partners in a firm. Through there is no provision in the partnership deed for interest on capital, this has been provided to the accounts @ 5% p.a. for the two years ended on 31st dec,1991, and 31st dec,1992. Their fixed capital on which interest was calculated were
throughout ---A Rs.50,000. B Rs.40,000 and C Rs.30,000. During the two years, they share profit as follows:
1991---5 : 3 : 2 1992---2 : 2 : 1
You are required to put through an adjustment entry as on 1st jan,1993.
(Ans: Dr. C Rs.600; Cr. A and B Rs.400 and Rs.200)
53. A and B are partners in a firm. A is to get a commission of 10 % of Net Profit before charging any commission .B is to get commission of 10 % on Net Profit after charging all commission . Net Profit before charging any commission was Rs.55,000. Find out the commission of A nad B.
(Ans: A commission 5,500; B’s commission 4,500)(CBSE 1991 Delhi )
54. Ram and Gopal were partners in a firm sharing profits in the ratio of 3:2. On 1:1 20x1 their fixed capitals were Rs.1,00,000 and Rs.1,50,000 respectively. On 31.3.2001, they decided that their total capital(Fixed)should be Rs.3,00,000 in their profit sharing ratio. Accordingly they introduced or withdrew the necessary capital. The partnership deed provided the following :
(i) Interest on capital @ 12 %p.a. (ii) Interest on drawings @ 18%p.a.
(iii) Monthly salary to Ram @ Rs.2000 per month and to Gopal @ Rs.3,000 per month. The drawings of Ram and Gopal during the year were as follows:
Date Ram Gopal
2001 Rs. Rs.
July 1 10,000 12,000
September 30 15,000 12,000
The profit earned by the firm for the year ended 31.12.2001 was Rs.2, 00,000. 10% of this profit was to be kept in a reserve.
You are required to prepare profit and loss appropriation account.
(Ans: Profit Rs. 88,695)[CBSE 1998 Delhi]
55. A, B and C are partners sharing profit in the ratio 5:4:1. C is given a guaranteed that his share in any year will not be less than Rs.5,000. The profit for the year ended December 31,20X1 amounted to Rs.40,000. Amount excess given to C will be borne by B. Pass the journal entries in the books of A, B and C.
(Ans: Dr. B Rs. 1000 and Cr. Rs. 1000)[CBSE 1991 Delhi (C)] 56. A, B and C are partners sharing profits in the ratio 5:4:1. C is given a guarantee that his share of profits in any given years would be Rs.5,000. Deficiency, if any, would be borne by A and B equally. The profits for the year 20X1 amounted to Rs. 40,000. Pass necessary entries in books of the firm.
(Ans: Dr. A and B Rs. 500, 500 and C Cr. Rs. 1000)[CBSE 1999 Delhi] 57. 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 adjustments : (i) A & B were entitled to a salary of Rs. 1,500 each per annum (ii) B was entitled to a commission of Rs. 4,500.
(iii) B & C had guaranteed a minimum profit of Rs. 35, 000 p.a. to A. (iv) Profits were to be shared in the ratio of 3:3:2.
(Ans: Dr. A Rs.8,500,B Cr. Rs.4,500,C Cr.Rs.4,000)[CBSE 2004]
58. A and B are partners sharing profits in the ratio of 5:3 . C was to receive salary of Rs.150 per month, plus a commission of 5 % on the profits after charging such salary and commission or 1/5th of the profits of the firm ,whichever is larger. Any excess of the latter over the former is
under the partnership agreement to be borne personally by A. Prepare the profit & Loss Appropriation Account in each of the following alternative cases:
Case (a): If the profits before charging C’s salary and commission for the year amounted to Rs.24,900. Case (b): If the profits for the year amounted to Rs.10,710 after charging C’s salary.
Case (c): If the profits for the year amounted to Rs.12,000 after charging C’s salary and commission .
59. A is a partner in a firm for the year ending 31 march 2006.
A’s drawings were : 31 may 2005 Rs.5,000; 30 Sept. 2005 Rs.4,000; 31 dec. 2005 Rs.6,000; 31 Jan. 2006 Rs.7,000.
Calculate A’s interest on drawings @ 12 % p.a. [Ans: Rs.1,060]
ADMISSION OF A PARTNER -1
VALUATION OF GOODWILL(I) Average Profit Method
Goodwill = Average Profit * No. of Years Purchase
Q1. Calculate Goodwill by average profit method if the profit for 2002 to 2005 are Rs.5,000; Rs. 8,000; Rs.4,000 and Rs.7,000 and the value of goodwill is at two years purchase.
(Goodwill Rs.12,000)
Q2. A and B are partners in a firm. The admit C into the firm. The goodwill for the purpose is to be calculated at 2 years purchase of the average normal profits of the last three years which were Rs.10,000; Rs.15,000 and Rs.30,000 respectively. Second years profit included profit on sale of machinery Rs.10,000. Find the value of goodwill of the firm on C’s admission .
Q3. Calculate Goodwill if : The goodwill of a firm is estimated at three years purchase of the average profit of the last five years which are as follows:
Years: 2000 2001 2002 2003
2004
Profits(Loss) Rs.20,000 30,000 8,000 (10,000) 12,000 Q4. Ram and Shyam were partners from 1st April 2002. They disclosed the profit for the last
three years :
2002-2003----Rs..2,800(Including an abnormal gain of Rs.800) 2003-2004----Rs. 2,100(Including an abnormal loss of Rs.100)
2004-2005----Rs. 3,000(Excluding Rs.600 as insurance premium of the firm.)
profits for the last 3 years.
(Ans: Goodwill Rs.6,600)
(II) Weighted Average Profit Method
Goodwill =Weighted Average Profit * No. of Years Purchase Weighted Average Profits = Total of Products of Profits
Total of Weights
Q1. The profits of a firm for the year ended 31st March for the last five years were as follows:
Year Profit(Rs.) Year Profit(Rs.)
2001 2,000 2002 2,400
2003 3,000 2004 2,500
2005 1,800
Calculate the value of goodwill on the basis of three years purchase of weighted average profits after weights 1,2,3,4 and 5 respectively to the profits 2001,2002,2003,2004 and 2005.
(Ans: Goodwill Rs.6,960)
(III) Super Profit Method
Goodwill = Super Profit * No. of Years Purchase Super Profit = Average Actual Profit---Normal Profit Normal Profit = Capital Employed * Normal rate of return
100 Q1. The average net profits expected in the future by the firm are Rs.46,000 per year. The
average capital employed in the business by the firm is Rs. 3,00,000. The rate of return expected from capital invested in this class of business is 10% . The remuneration of the partners is estimated to be Rs. 8,000 per annum . Find out the value of goodwill on the basis
of two years purchase of Super Profits. (Goodwill Rs.16,000)
Q2. The average net profit expected in the future by ABC firm are Rs. 86,000 per annum . The average capital employed in the business by the firm is Rs.5,00,000. The rate of interest expected from capital invested in this class of business is 10 %. The remuneration of the partners is estimated to be Rs. 6,000 per annum .Find out the value of goodwill on the basis
of two years purchase of Super Profits. (Goodwill Rs.60,000)
Q3. A firm earned net profit during the last three years as follows:
1st year 2nd year 3rd year
18,000 20,000 22,000
The capital investment of the firm is Rs.60,000.
A fair return on the capital having regard to the risk involved is 10% . Calculate the value of goodwill on the basis of 3 years purchases . (Goodwill Rs. 42,000) Q4. Dutta and Bose had a firm in which they had Invested Rs.50,000, On the average the profits
were Rs. 16,000. The usual rate of earning in the industry is 15 % . Goodwill is to be valued at 4 years purchase of profits in excess of profits @15 % on the money invested . Value the
goodwill. (Goodwill Rs.34,000)
Q5. A firm earned net profit during the last five years as follows :
I—Rs. 7,000; II—Rs 6,500; III--Rs. 6,00; IV--Rs.7,500 and V—Rs. 8,000
The capital investment of the firm is Rs.40,000. A fair return on capital in the market is 12%. Find out the value of goodwill of the business if it is based on three years purchase of average super profits of the past five years. (Goodwill Rs. 5400) Q6. On April 1st 1998, an existing Firm had assets of Rs.75,000/- including cash of Rs.5,000/-.
The partner’s capital accounts showed a balance of Rs.60,000/- and reserve constituted the rest . If the normal rate of return is 10% and the goodwill of the firm is valued at Rs. 24,000/- at 4 years purchase of super profits find the average profits of the firm .
(Goodwill Rs. 13,500)
Q7. On 1st April 1994, an existing Firm had assets of Rs. 75,000 including cash of Rs.5,000. It’s
creditors amounted to Rs.5,000 on that date . The firm had a Reserve Fund of Rs. 10,000 while partners capital accounts showed a balances of Rs.60,000. If the Normal Rate of return is 20%, and the goodwill of the firm is valued at Rs.24,000, at four years purchase of super profit, find the average profits per year , of the firm .
(Ans:Rs.20,000)
(IV) Capitalization Method
(a) Capitalization of Average Profit Method
Goodwill = Total Capitalized Value of Average profit – Capital Employed (Net Tangible Assets)
Total Capitalized Value of Average Profits =Average Profits * 100 Normal Rate of Return
Capital Employed (Net Tangible Assets)= Total Tangible Assets(other than goodwill, fictitious assets )- Outsider’s Liabilities
Q1. A firm earns Rs. 3,00,000 as its annual profits, the rate of return being 12%. The assets of the firm amount to Rs. 36,00,000 and liabilities Rs. 12,00,000. Calculate the value of goodwill
by capitalization method. (Goodwill Rs. 1,00,000)
Q2. A firm earns a profit of Rs.16,00,000 per year .In the same business at 10% return is generally expected . The total assets of the firm are Rs.1,70,000. The value of other
liabilities is Rs.60,000. Find out the value of goodwill. (Goodwill Rs.50,000)
Q3. A business has earned average profit Rs.10,000 during the last few years and the normal rate of return in a similar type of business is 10%. As certain the value of goodwill by capitalization method , given that the value of net assets of the business is Rs.82,000.
(Goodwill Rs.18,000)
Q4. A firm has earned an average profit of Rs.55,000 during the last years and the normal rate of return in similar type of business is 10 %. Find out the goodwill by capitalization method assuming that the firm owns total assets worth Rs.5,50,000 including there in a goodwill of Rs.50,000 and the firm has to pay Rs.1,00,000 to the outside liabilities.
(Goodwill Rs.1,50,000)
(b) Capitalization of Super Profits Method:
Goodwill = Super Profit * __________100_________ Normal Rate of Return
Q1. Calculate goodwill if : A firm earn net profit of Rs.12,000 with a capital of Rs.80,000. The normal rate of return in the business is 10%. Use capitalization of Super Profit method I
in to value the goodwill . (Goodwill Rs 40,000)
Q2. The average net profit expected in future a co. are Rs.3,000 per year. The average capital employed in the business by firm is Rs.20,000. The normal rate of return on the capital employed in similar business is 10%. Calculate goodwill of the firm by Capitalization
Method of Super Profits. (Goodwill Rs. 10,000)
Q3. The average profit of the firm is Rs. 15,000. The total tangible assets in the firm is Rs. 1,40,000 and outside liabilities are Rs.40,000. In the same type of business , the normal rate of return is 10% of the capital employed . Calculate the value of goodwill by capitalization
Rules:
Type 1: When the incoming partner is given a specific share of the future profits .
Que. A B C was admitted for 1/7th share
3 : 2 Calculate New Ratio& Sacrificing Ratio
Q1. A and B are partners sharing profits and losses in the ratio of 3:2.. C is admitted for 1/5th share
of profit . Calculate the new profit sharing ratio. (New Ratio 12:8:5) Q2. Ravi and Mukesh were partners sharing profits in the ratio of 7:3. Ashok was admitted on 3/7
share in the profits. Calculate new profit –sharing ratio of the partners.
(New Ratio 14:6:15)
Q3. A,B and C sharing profits in the ratio of 6:5:3 agreed to admit D for 1/8th share. Calculate the
new profit sharing ratio. (New Ratio 6:5:3:2)
Q4. A and B shared profit in the ratio of 3:2. C was admitted to get 4/15th of profits. Calculate the
new profit sharing ratio. (New Ratio 33:22:20)
Type 2: When the incoming partner acquires his share of profits from the old partners.
Ques. A B C was admitted for 1/6th share .
3 : 2 Which he took 1/8 from A & 1/24 from B . Calculate New ratio. Q1. A and B are partners sharing profits in the ratio of 3:2. They admit C into the firm for 3/7th
profits which he takes 2/7th from A and 1/7th from B .Calculate the new profit sharing ratio.
(New Ratio 11:9:15)
Q2. A and B are partners sharing profit and losses in the proportion of 7:5. They agree to admit C their manager into partnership who is to get 1/6th share in the profits. He acquires his share as
1/24th from A and 1/8th from B . Calculate the new profit sharing ratio.
(New Ratio 13:7:4)
Q3. A and B are partners sharing profits in the ratio of 5:3.. C is admitted as partner, he acquires 3/16 of the profits from A and B 1/16 from B. Calculate the new profit sharing ratio.
(New Ratio 7:5:4)
Q4. A and B are partners in a firm sharing profits and losses in the ratio of 3:2.. C is admitted as partner, he gets 3/20 of the profits from A and 1/20 from B. Calculate the new profit sharing
ratio. (New Ratio 9:7:4)
Q5. A and B are partners sharing profits and losses in the ratio of 5:3.. C is admitted in the firm with 1/5th share in the profits which he acquired 1/10 the from A and 1/10th from B. Calculate
the new profit sharing ratio. (New Ratio 21:11:8)
Q6. A and B are partners sharing profits in the ratio of 2:1. They admit C into partnership giving him 1/5 share in the profit which he acquires from A and B in the ratio of 1:2.. Calculate the
new profit sharing ratio. (New Ratio 3:1:1)
Q7. A and B are partners sharing profits in the ratio of 3:2..C is admitted for 1/5th share in the
profits which he acquires equally from A and B . Calculate the new profit sharing ratio.
(New Ratio 5:3:2)
Q8. A and B are partners sharing profits in the ratio of 4:1.. C is admitted for ¼ share in profits which he acquires wholly from A. Calculate the new profit sharing ratio.
Sacrificing share = Old Share – New Share
New Share = Old Share – Sacrificing Share
(New Ratio 11:4:5)
Q9. A and B are partners sharing profits in the ratio of 3:2.. C is admitted for 1/5 share in the profit of the firm. which he acquires wholly from B . Calculate the new profit sharing ratio.
(New Ratio 3:1:1) Type 3: When the old partners surrender a particular fraction of their share in favour of incoming partner.
Ex.
A B C was admitted for A surrendered 1/5th of his share and B surrendered 1/10th of his share
3 2 Calculate New Ratio and Sacrificing share.
Q1. A and B are partners sharing profits in the ratio of 7:3.. C is admitted . A sacrifices 2/7th of his
share and B 1/7 of his share in favour of C. Calculate the new profit sharing ratio.
(New profit sharing Ratio 3:3:2 Sacrificing Ratio 13:5)
Q2. A and B are partners sharing profits in the ratio 7:3. A surrenders 1/7th of his share and B surrenders
1/3rd of his share in favour of C, a new partner . What is the new ratio and what is the sacrificing ratio?
(New Ratio 4:3:1)
Q3. R and S are partners in a firm sharing profits and losses in the ratio of 3:2. They admit T as a new partner. R surrenders 1/5th share of his profit in favour of T and S surrenders 2/5th of his share in favour
of T. Calculate their new profit sharing ratio. (New Ratio 12:6:7)
Q4. A and B are partners sharing the profits in the ratio of 3:2. C is admitted , A sacrifices 1/3 of his share and B ¼ of his share in favour of C. Calculate the new profits sharing ratio. (New Ratio 4:3:3)
Q5. X and Y are partners in a firm sharing profits and losses in the ratio of 9:6.. A new partner Z is
admitted .X surrenders 3/15th of his share and Y surrender 6/15 of his share n favour of Z. Calculate the
new profit sharing ratio. (New Ratio 12:6:7)
Q6. Shanno and Sukesh are two partners sharing profits in the ratio of 3:2.. They admit Susheem into partnership as a partner from 1st April 1997. Shanno gives 1/3 of his share while Sukesh gives 1/10
from his share. Calculate new profit sharing ratio and sacrificing ratio.
(New Ratio sharing ratio 4:3:3,sacrificing ratio 2:1) Type 4: When the new profit sharing ratio of old partners is given.
Ex. A : B = 3 : 2
C was admitted for 1/5th share. A & B agree to share future profit equally.
Calculate the new ratio.
Q1. A and B are partners sharing profit and losses in the ratio of 5:4.. C was admitted for 1/4th share . A
and B decided to share equally in future . Find the sacrificing ratio and new profit sharing ratio.
(New profit sharing ratio 3:3:2 Sacrificing ratio 13:5)
Q2. A and B are partners sharing profits in the ratio of 3:2.. They admit C with 1/8th share in the profits.
The new profit sharing ratio between A and B is 4:3. Calculate the new profit sharing ratio.
(New Ratio 4:3:1)
Q3. A, B,C and D are in partnership sharing profits and losses in the ratio of 36:24:20:20 respectively. E joins the partnership for 20% share, A ,B ,C and D would in future share profit among themselves as 3/10:4/10: 2/10:1/10. Calculate the new profit sharing ratio after E’s admission.
(New Ratio A,B ,C,D & E 6:8:4:2:5)
Q4. X and Y are partners in a firm sharing profits and losses in the ratio of 3:2. Z is admitted as partner with 1/8th share in profits . It is decided that X and Y will share profits and losses in future in the ratio
of 5:3. Calculate the new profit sharing ratio and the sacrificing ratio. (New Ratio 35:21:8)
Type 5: When the old ratio & new ratio both are given.
Q1. A and B are partners sharing profits in the ratio of 5:3. They admit C and the new profit sharing ratio is agreed at 4:2:1. Calculate the sacrificing ratio. (Sacrificing Ratio 3:5)
Sharing ratio among A,B and C is 5:3:2. Calculate the sacrificing ratio. (Sacrificing Ratio 1:1) Q3. A,B and C are partners sharing profits and losses in the ratio of 3:2:1. D is admitted . The new profit
Sharing ratio between A, B and C and D will be 3:3:2:2. Calculate the gain /sacrifice.
(A sacrificed 6/30, B sacrificed 1/30, C gained 1/30)
Q4. A and B are partners sharing profit in the ratio of 3:1. They admit C and the new ratio of A,B and C is agreed at 3:1:1. Calculate the sacrificing ratio. (Sacrificing Ratio 3:1)
Q5. A,B and C partners sharing profit in the ratio 4:3:2. D is admitted . The new profit sharing ratio of A,B and C will be 3:2:2:2 respectively. Calculate the sacrificing ratio. (A & B 1:1 )
Q6. A and B are partners who share the profits in the ratio of 2:1. They admit C , and decide to share the future profit in the ratio of 2:2:1. Calculate the gain or sacrifice.
(A Scarified 4/15 & B Gain 1/1)
Q7. A and B share profit in the ratio of 3:2.. c is admitted for 1/6th share . A and B will in future get 2/6th
and 3/6th share of profits . Calculate the gain or sacrifice .
MISCELLANEOUS
Q1. X, Y and Z are partners in the ratio of 3:2:1. W is admitted with 1/6 share in profit. Z would retain his original share . Find out new profit sharing ratio. (New Ratio 12:8:5:5)
Q2. X and Y are partners sharing profit and losses in the ratio of 3:2. Z is admitted for 1/4th share.
Thereafter W enters for 20paise in the rupee. Compute the profit sharing ratio of X,Y and Z and W
after W’s admission . (New Ratio 9:6:5:5)
TREATMENT OF GOODWILL
CASE 1:
WHEN A NEW PARTNER BRINGS AMOUNT OF GOODWILL IN CASH
A : B = 3 : 2. C’s share = 1/6 C’s Share of goodwill = Rs.10,000 C’s Share of Capital = Rs.80,000 Goodwill already appears at Rs.25,000
1st STEP : ENTRY FOR WRITING OFF THE 3rd STEP : ENTRY FOR TRANSFERRING THE
OLD GOODWILL AMOUNT OF GOODWILL
(If old goodwill is given in old balance sheet ) (Premium A/c………Dr. 10,000
A’s Capital A/c ………….Dr.15,000 A’s capital A/c 6,000
B’s Capital A/c ………….Dr.10,000 B’s capital A/c 4,000
(This entry is done in the old ratio 3:2) (This entry is done by sacrificing ratio.)
2nd STEP : ENTRY FOR BRINGING AMOUNT OF 4th STEP : IF MENTIONED IN QUESTION
GOODWILL & CAPITAL ENTRY FOR WITHDRAWING
THE AMOUNT OF GOODWILL
CASH A/c ……….Dr. 90,000
Premium A/c 10,000 B’s Capital A/c ………….Dr. 4,000 (This entry is done by sacrificing ratio.) Q1. A and B, sharing profits and losses in the ratio of 3:2, admit C partnership , C paying Rs.1,000 as
goodwill for ¼ share and Rs.10,000 as capital . No goodwill account appears in the books . Partners withdrew amount of goodwill . Give journal entries to record these transactions.
(Goodwill credited to A Rs.600, B Rs.400)
Q2. A and B share profits in the ratio : A, 5/8 and B , 3/8 . C was admitted as a partner. He brings in Rs.10,000 as his capital and Rs.8,000 as remaining for goodwill . The new profit –sharing ratio will be 7:5:4, Make journal entries. (Goodwill credited to A Rs.6,000, B Rs.2,000) Q3. A and B sharing profit in the ratio of 5:3, admit C who brings in Rs.1,40,000 as his capital and
Rs.36,000 as goodwill . They new profit sharing ratio will be 7:5:4. Pass journal entries .
(Sacrificing Ratio 3:1, Goodwill credited to A Rs.27,000, B Rs.9,000)
Q4. A and B are in partnership with capitals of Rs.10,000 and Rs.6,000 and sharing profit two-thirds and one –thirds respectively. On 1st Jan , 1992, they agree to admit C into partnership with a one –sixth
share on condition that he brings in Rs.5,500(Rs.4,000 to represent his capital and Rs,1,500 to represent goodwill). The whole of Rs.5,500 is to remain in the business . give the journal entries to record these transactions, the relative shares of A and B remaining the same as before , and state the future shares of the partners .
(Goodwill Credited to A Rs.1,000: B Rs.500, New ratio 10:5:3)
Q5. P and S are partners sharing profit in the ratio of 3:2. Their books showed goodwill at Rs.20,000. R is admitted with 1/5th share which he acquires equally from P and S . R brings in Rs.40,000 as his capital
and Rs.10,000 as his share of goodwill . Profits at the end of the year were the amount of Rs.1,00,000 You are required to give journal entries to carry out the above arrangement .
(Goodwill credited to A and B Rs.5,000 each)
Q6. A and B are partners sharing profits and losses in the ratio 7:3. C is admitted as a new partners for 3/7th
share which he acquires 2/7th from A and 1/7th from B . C brings in Rs.24,000 as capital and Rs.18,000
as his share of goodwill . Pass the necessary journal entries in the books of the firm .
(Sacrificing Ratio 2:1, Goodwill credited to A Rs.12,000, B Rs.6,000) Q7. A and B are partners in a firm. Their profit sharing ratio is 5:3. They admit C into partnership for 1/4th
share. As between themselves A and B decide to share profits equally in future . C brings in Rs.12,000 as his capital and Rs.6,000 as premium . Calculate the sacrificing ratio and pass the necessary journal entries.
(Sacrificing Ratio 1:0, Goodwill credited to A Rs.6,000) Q8. On 1st Jan,1999, A and B sharing profits in the ratio of 2:1 respectively agree to admit to C into
partnership on the condition that he pays Rs.30,000 as capital and Rs.6,000 for 1/6th share of goodwill
which he acquires equally from A and B . Pass necessary journal entries .
(Goodwill credited to A and B Rs.3,000 each) Q9. A and b are partners ,sharing profits and losses in the ratio of 3:2. Goodwill appears in their balance
sheet at Rs.24,000. When C is admitted into partnership for 1/5th share in profit, he pays Rs.50,000 for
capital and Rs.18,000 for goodwill. The ratio of the partners A ,B and C in the new firm would be 2:2:1. It is decided that goodwill account will not appear in the books . Pass journal entries in the books of the new firm to Record above adjustment.
(Goodwill credited to A Rs.18,000)
Q10. A and B are partners sharing profits and losses in the ratio of 3:2. They admit into partnership for 1/4th
share. C brings in Rs.10,000 fro capital and the requisite amount premium in cash. The goodwill of firm is valued at Rs.4,000.Partners withdrew their share of goodwill .Give the necessary journal entries.
(Goodwill credited to A Rs.600 and B Rs.400)
Q11. A and B are partners sharing profit in the ratio of 2:1. They admit C who brings in Rs.10,000 as his capital and the requisite share of goodwill in cash . A, B and C agree share future profits equally . The
amount of Goodwill is withdrawn from the business. The value of goodwill was determined as Rs.9,000. Give the necessary journal entries.
(Goodwill credited to A Rs.3,000 Sacrificing ratio 1:0) Q12. X and Y are partners in a firm sharing profits and losses in the ratio of 3:2. They decide to admit Z into Partnership with ¼ share in the profits, Z will brings in Rs.18,000 for capital and the requisite amount of Premium in cash . The goodwill of the firm is valued at Rs.12,000.The new profit sharing ratio becomes 2:1:1. X and Y withdraw their share of goodwill . Give necessary journal entries.
(Goodwill credited to X Rs.1,200, Y Rs.1,800, Sacrificing ratio 2:3)
Q13.(a) A and B are in partnership sharing profit and losses in the ratio of 5:3. C is admitted as a partner paying Rs.40,000 as capital and the necessary amount of goodwill which is valued at Rs.30,000 for the firm. His share of profits is 1/5th of which he takes 1/10th from A and 1/10th from B . The profit for the first
year of new partnership amounts to Rs.24,000. Appropriation the first years profit among the partners.
(Goodwill credited to A & B Rs.3,000each)
Q13.(b) A,B and C are partners sharing profits in the ratio of 5:3:2. Goodwill is appearing in the book at Rs.50,000.D is admitted in to the partnership, the new profit sharing ratio between A,B ,C and D being 3:3:2:2. Give the journal entries for goodwill if the new partner D brings Rs.1,00,000 for capital and cash for his share of goodwill . The goodwill of the firm is valued Rs.1,20,000 and it is not to appear in the books after D’s admission.
(Goodwill credited to A Rs.24,000)
Q14. Give journal entries to record the following arrangements in the books of the firm :
A,B and C are partners sharing profits in the ratio of 3:2. D is admitted paying a premium (goodwill) of Rs.4,000 for 1/4th share of the profits Share of B and C remaining as before . No goodwill account
appears in the books .
(Goodwill credited to B Rs.2,400, C Rs.1,600)
Q15. B and C are partners sharing profits in the ratio of 3:2, D is admit paying a premium of Rs.21,000 for 1/4th Share of profit which acquires 1/6th from B and 1/12th from C. No goodwill account appear in the
books .
(Goodwill credited to B Rs.14,000, C Rs.7,000)
Q16.(a) P and Q are partners sharing profits in the ratio of 4:3. They admit R into partnership for 1/5th share
who pays Rs.7,000 in cash for goodwill . P and Q decide to share future equally among themselves . No goodwill account appears in the books .Pass the necessary journal entries .
(Goodwill credited to P Rs.6,000, Q Rs.1,000 Sacrificing Ratio 6:1)
Q16.(b) A and B are partners sharing profit and losses in the ratio of 3:2 respectively. They admit C paying a Premium of Rs.1,000 for ¼ share while A and B as between sharing profit and losses equally in future . Give the necessary journal entries . (Goodwill credited to A Rs.900,B Rs.100 sacrificing Ratio 9:1) Q17. Give journal entries to record the following arrangement in the books of a firm. A and B are partners
Sharing profits in the ratio of 3:2. Goodwill appears in their books at Rs.3,000. They admit C into Partnership, C paying a premium of Rs.2,000 for one-fourth share of the profits. A and B as between themselves sharing profit as before .
(Goodwill A/c raised in the ratio of 9:6:5,Goodwill credited to A Rs.1,200,B Rs.800)
Q18. B and C are partners sharing profits in the ratio of 3:2. Goodwill appears in the books at Rs.3,000. Disadmitted into partnership on payment Rs.20,000 fro Goodwill for 1/4th share, B and C sharing
profits between themselves in the same proportion as before: (a) Calculate the Sacrificing Ratio./
(b) Record the transactions assuming Goodwill account will not appear in the books of B,C and D.
(Goodwill credited to B Rs.12,000, C Rs.8,000 Sacrificing Ratio 3:2)
Q19.(a) A and B are partner sharing profits in the ratio of 3:2. They admit C into partnership . C paying a premium of Rs.2,000 for 1/4th share of profit. The new ratio is 3:3:2. Goodwill account appears in the
books at Rs.1,000.Pass the necessary journal entries .
Q19.(b) A and B are partners sharing profits in the ratio of 3:2. They admit C as new partner. C pays a premium of Rs.3,000 for 3/10th share of profits , which he acquires from A and B in the ratio of 2:1. goodwill
account appears in the books at Rs.2,000. Give the necessary journal entries .
(Goodwill credited to A Rs.2,000, B Rs.1,000 )
Q20.(a) A and B are partners sharing profit in the ratio of 3:2. They admit C into partnership and he is to pay Rs.3,000 as a premium for 1/4th share of profit. Goodwill account already appears in the books at Rs.
4,000.It is decided to write off the goodwill account the new profit –sharing ratio is 3:3:2.
(Goodwill credited to A Rs.2,700, B Rs.300 )
Q20.(b) A and B are partners sharing profits in the ratio 3:2. They admit C into partnership. C pays a premium of Rs.1,000 for 1/4th share of profit . The new ratio is 3:3:2. Goodwill account appears in the books at
Rs.1,000.Give the necessary journal entries .
(Goodwill credited to A Rs.900, B Rs.100 )
Q21.(a) Pass the journal entries to record the following adjustment in the books of a partnership firm: X and Y are partners profits equally, they admit Z into partnership and has to pay a premium (goodwill) of Rs.12,000 for 1/3rd share of profit. The amount is withdrawn by the partners . No goodwill account
appears in the books.
(Goodwill credited to X & Y Rs.6,000each )
Q21.(b) Vimal and Kamal admit Amal as a new partner who brings Rs.15,000 as his share of goodwill
(premium). Amal is entitled to 1/3rd share in profits. As between themselves , Vimal and Kamal agre to
share future profit and loss equally. Calculate the new profit sharing ratio and pass the journal entries showing the appropriation of premium.
(New Ratio 1:1:1,Sacrificing ratio 1:1, Goodwill credited Vimal & Kamal Rs.7,500each )
Q22. A and B carrying on business as partners used to share profits and losses thus: A 4/7th and B 3/7th and
Goodwill appeared in the books of the firm at Rs.5,600 when C was admitted as a partner having 1/7th
Share in profit and losses . C was asked to pay a premium of Rs.1,400 for goodwill and the profit sharing ratio as between A and B remained uncharged . Show journal entries .
(Goodwill credited to A Rs.800, B Rs.600 )
Q23.(a) A and B are partners sharing profits and losses in the ratio of 3:2. They admit C as a new partner for 1/5th share in profit . The goodwill is valued at Rs.30,000, C brings in the necessary amount of
premium. Pass the necessary journal entries .
(Goodwill credited to A Rs.3,600,B Rs.2,400 Sacrificing Ratio 3:2)
Q23.(b) A and B are partners sharing profits and losses as 2:1, C and Dare admitted and profits sharing ratio becomes 4:2:3:1. Goodwill is valued at Rs.40,000. D brings required goodwill and Rs.5,000 cash for capital. C brings in Rs.5,000 cash and Rs.6,000 worth stock as his capital in addition to the required amount of goodwill in cash .Show the necessary journal entries .
(D’s share of Goodwill Rs.4,000, C’s share ofgoodwill Rs.12,000 )
Q24. X and Y are partners sharing profits and losses in the ratio of 3:2. They agree to admit Z upon payment in cash of Rs.4,800 for 2/7th share of goodwill and Rs.6,000 as his capital. Give the necessary journal
entries to give effect to these arrangement.
(S.R.3:2 G/W credited to X Rs.2,880,Y Rs.1,920)
Q25. A,B and C are partners sharing profits in the ratio of 4:3:2. D is admitted for 2/9th share of
profit and brings Rs.30,000 as his capital and Rs.10,000 for his share of goodwill. The new profit sharing ratio of A,B ,C and D will be 3:2:2:2. journalize the above arrangement in the books .
(Goodwill credited to A Rs.5,000, B Rs.5,000 )
Q26.(a) A and B are partners in a firm sharing profit and losses in the ratio of 5:3. C is admitted in the firm for 1/5th share of profits. He is to bring in Rs.12,000 as capital and Rs.2,400 as his share of goodwill . Give
