Important questions of fundamentals of partnership

Important questions of fundamentals of partnership 

  • Interest on Capital
  • Interest on drawing
  • Profit and Loss Appropriation Account
  • Profit and Loss Appropriation Account and Partners Capital Account
  • Past Adjustment
  • Guarantee of Profit

Important questions of fundamentals of partnership 

 INTEREST ON CAPITAL
As you know, interest on capital is allowed when it is provided in the Partnership Deed.

If it is so provided, the rate of interest will be as agreed upon by the partners.

The rate of interest should not exceed 12%. If the amount of interest exceeds 12% of the capital then such excess amount is disallowed.

Interest is allowed on the opening balance of the partner’s capital account.

When additional capital is introduced and some capital is withdrawn permanently, the interest will be calculated on the amount of the capital used in the business during a particular period.

Accounting treatment of Interest on capital

Interest on partner’s capital is an expense to the firm and hence debited to profit and loss appropriation A/c. On the other hand, it is an income for partners and hence credited to the partner’s capital account/current account (Individually).

Accounting Entries

For Interest allowed on Capital:

Interest on Capital A/c  Dr.

To Partner’s Capital /current A/c (Individually)

(Crediting ‘Interest on Capital’ to Partner’s  Capital/current A/c)

For transferring Interest on Capital to Profit and Loss Appropriation A/c :

Profit and Loss Appropriation A/c Dr.

To Interest on Capital A/c

(Interest on capital transferred to Profit & Loss Appropriation A/c

Important questions of fundamentals of partnership

Interest on Capital: 

Example 1.

Ram and Shyam started a partnership business on 1st April 2022. Their capital contributions were ₹1,80,000 and ₹1,20,000 respectively. The partnership deed provided Interest allowed on capitals @10% p.a. The books are closed on March 31, every year. Calculate Interest on Capital and Pass Journal entries for Interest on capital in the books of firms.

Calculation of Interest on capital : 

Accounting Treatment

 Example 2.

Shilpa and Sanju are partners with a capital of ₹ 2,00,000 and ₹ 1,00,000 on April 1,2019 respectively.

Shilpa introduced additional capital of ₹ 30,000 on September 30, 2019 and Sanju introduced additional capital of ₹ 20,000 on January 1, 2020.

Calculate interest on capital for the Year Ending 31st March 2020. The rate of interest on capital is 9% p.a. Pass Journal entries for Interest on capital in the books of firms.

Calculation of Interest on capital : 

Accounting Treatment

Example 3.

Ajay and Shubham are partners in a firm with a capital of ₹4,00,000 and₹ 3,00,000 on April 1, 2019, respectively.

Ajay introduced additional capital of ₹ 80,000 on June 1st, 2019 and Shubham introduced additional capital of ₹ 50,000 on September 30th,2019. Ajay withdraw ₹30,000 from his capital on January 1st, 2020.

Calculate interest on capital for the year ending 31st March 2020. The rate of interest on capital is 9% p.a.and Pass Journal entries for Interest on capital.

Calculation of Interest on capital : 

Accounting Treatment

Important questions of fundamentals of partnership 

Example 4.

Anil is a partner in a firm with a capital of ₹ 4,00,000 on April 1st ,2019.

Anil introduced additional capital of

₹ 1,50,000 on June 1st ,

₹ 1,00,000 on September 30th And

₹ 50,000  on January 1st 2020

Anil withdraw ₹ 25,000 on August 1st  and₹ 15,000 on December 1st 2019 from his capital . Calculate interest on capital for the Year Ending 31st March 2020. The rate of interest on capital is 9% p.a.

Calculation of Interest on capital : 

Calculation of Opening Capital

Generally, Interest on capital is calculated on opening capitals.If opening capital is not given in the question or Closing capital is given in the question, it is necessary to calculate the opening capital.

Example 5.

Kapil and Vikas are partners in a firm sharing profits and losses in the ratio of 3:2 . their capitals at the end of the financial year 2020 were ₹ 5,60,000 and₹ 4,10,000 after debiting drawings and crediting Share of Profits respectively. Their drawings during the year were

₹75,000 and ₹ 45,000 respectively. Profit for the year ₹1,00,000.

Calculate interest on capital for the year ending 31st March 2020. The rate of interest on capital is 10% p.a.

Calculation of Interest on capital:

Example 6.

Vivek and Vikas are partners in a firm sharing profits and losses in the ratio of 4:1 . their capitals at the end of the financial year 2020 were ₹3,60,000 and ₹2,40,000 after debiting drawings and crediting Share of Profits respectively. Their drawings during the year were:

₹40,000 and ₹ 60,000 respectively.

Profit for the year₹1,25,000. Vivek introduced additional capital of ₹ 30,000 on September 30, 2019. Calculate interest on capital for the year ending 31st March 2020. The rate of interest on capital is 6% p.a.

Calculation of Interest on capital:

Important questions of fundamentals of partnership 

Example 7.

Ajay and Shubham are partners in a firm with a capital of ₹4,00,000 and ₹ 3,00,000 on April 1, 2019 respectively.

Ajay introduced additional capital of ₹ 80,000 on June 1st , 2019 and Shubham introduced additional capital of ₹ 50,000 on September 30th ,2019. Ajay withdraw ₹ 30,000 from his capital on January 1st 2020.

Calculate interest on capital for the year Ending 31st March 2020 by product method. The rate of interest on capital is 9% p.a.

Calculation of Interest on capital by Product Method:

Example 8.

Anil is a partner in a firm with a capital of ₹ 4,00,000 on April 1st ,2019.

Anil introduced additional capital of

₹ 1,50,000 on June 1st ,

₹ 1,00,000 on September 30th And

₹50,000  on January 1st, 2020

Anil withdraw ₹ 25,000 on August 1st  and ₹ 15,000 on December 1st from his capital 2019 Calculate interest on capital for the year ending 31st March 2020 by product Method. The rate of interest on capital is 9% p.a.

Calculation of Interest on capital by Product Method:

Example 9.

Salil is a partners in a firm with a capital of ₹ 5,00,000 on April 1st ,2019.

Salil introduced additional capital of

₹1,20,000 on June 1st ,

₹ 80,000 on September 1st

₹ 4,00,000 on December 1st  And

₹ 60,000  on January 1st 2020

Salil withdraw ₹ 35,000 on August 1st, 2019 and ₹ 15,000 on March 1st, 2020 from his capital.  Calculate interest on capital for the year ending 31st March 2020. The rate of interest on capital is 5 % p.a.

Important questions of fundamentals of partnership 

Profit and loss Appropriation Account

Format of Profit and loss Appropriation Account

Hidden Goodwill at the time of Admission of A New Partner

 

 

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