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3
12
=` 450
Total Interest on Arjuns Capital =2,400 +450 =` 2,850
ii. Interest on Kailashs Capital will be calculated as under
a. Kailashs Old Capital =30,000
12
100
12
12
=` 3,600
b. Kailashs New Capital =10,000
12
100
9
12
=` 900
Total Interest on Kailashs Capital =3,600 +900 =` 4,500
Q.4. Bunty has a capital of ` 50,000 and Chunky has a capital of ` 30,000 as on 01-04-11. If the rate of interest
is 12% and Bunty had reduced his capital to ` 30,000 on 01-10-11, what will be interest on their capital as
on 31-03-2012.
Solution:
Interest on Buntys Capital will be calculated in two parts:
i. Interest on ` 30,000 for 12 months
30,000
12
100
12
12
=3,600
ii. Interest on ` 20,000 for 6 months
20,000
12
100
6
12
=1,200
Total Interest on Buntys capital =3,600 +1,200 =` 4,800.
Interest on Chunkys Capital
30,000
12
100
=` 3,600.
Target
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Chapter 01: Introduction to Partnership
9
Q.5. Calculate the Interest on Drawings at the rate of 10% per annum in the following situations:
Drawings of Laxman ` 2,000 p.m.
i. Made at the beginning of the month.
ii. Made during the middle of the month.
iii. Made at the end of each month.
iv. If problem is silent about the date of withdrawal.
Solution:
i. If ` 2,000 p.m. is withdrawn at the beginning of each month then interest will be calculated for
6.5 months.
2,000 12
10
100
6.5
12
=` 1,300
ii. If ` 2,000 p.m. is withdrawn during the middle of the month then interest on drawing will be
calculated for 6 months.
2,000 12
10
100
6
12
=` 1,200
iii. If ` 2,000 p.m. is withdrawn at the end of each month then interest on drawing will be calculated for
5.5 months.
2,000 12
10
100
5.5
12
=` 1,100
iv. If the problem is silent about the date of drawings then interest on drawings will be charged for
6 months.
2,000 12
10
100
6
12
=` 1,200
Q.6. Gross profit of the firm is ` 60,000 and Vijay is paid 10% commission on gross profit then what will be his
commission?
Solution:
Vijays Commission will be:
60,000
10
100
=` 6,000
Q.7. Net Profit of the firm is ` 18,000 after paying commission at the rate of 10% to Raman, a partner. What is
his commission and what is the profit before commission?
Solution:
Profit before commission (100) =Net Profit (90) +Ramans Commission (10)
=18,000
100
90
=` 20,000
Ramans Commission =20,000
10
100
=` 2,000
Q.8. Rahul and Sumit are partners sharing profits and losses in the ratio 2:1. On 1
st
April, 2012 their Capital
balances are Rahul ` 60,000 and Sumit ` 30,000, their drawings are ` 6,000 and ` 4,000 respectively.
According to the partnership deed, 10% interest is allowed on partners capital and 12% interest is charged
on their drawings. Rahul gets salary of ` 3,000 per month and Sumit is entitled to receive commission @
5% on sales which is ` 5,00,000. The profit of the firm is ` 30,000.
Prepare Partners Capital Account and Partners Current Account for the year ended 31
st
March, 2013 in the
below situations:
A. Fixed Capital Method B. Fluctuating Capital Method
Target
Publications Pvt. Ltd.
Std. XII (Commerce): Book-Keeping & Accountancy
10
Solution:
A. Fixed Capital Method:
Partners Capital Account
Dr. Cr.
Particulars
Rahul
`
Sumit
`
Particulars
Rahul
`
Sumit
`
By Balance b/d 60,000 30,000
To Balance c/d 60,000 30,000
60,000 30,000 60,000 30,000
Partners Current Account
Dr. Cr.
Particulars
Rahul
`
Sumit
`
Particulars
Rahul
`
Sumit
`
To Drawings A/c 6,000 4,000 By Interest on Capital A/c 6,000 3,000
To Interest on Drawings A/c 360 240 By Salary A/c 36,000
By Commission A/c 25,000
By Profit & Loss A/c 20,000 10,000
To Balance c/d 55,640 33,760
62,000 38,000 62,000 38,000
B. Fluctuating Capital Method:
Partners Capital Account
Dr. Cr.
Particulars
Rahul
`
Sumit
`
Particulars
Rahul
`
Sumit
`
To Drawings A/c 6,000 4,000 By Balance b/d 60,000 30,000
To Interest on Drawings A/c 360 240 By Interest on Capital A/c 6,000 3,000
By Salary A/c 36,000
By Commission A/c 25,000
By Profit & Loss A/c 20,000 10,000
To Balance c/d 1,15,640 63,760
1,22,000 68,000 1,22,000 68,000
Working Notes:
i. Effects to Profit and Loss Account
Dr. Cr.
Particulars
Amount
`
Amount
`
Particulars
Amount
`
Amount
`
To Interest on Capital A/c By Interest on Drawings A/c
Rahul 6,000 Rahul 360
Sumit 3,000 9,000 Sumit 240 600
To Rahuls Salary A/c 36,000
To Sumit Commission A/c 25,000
To Net Profit c/d
Rahul (2/3) 20,000
Sumit (1/3) 10,000 30,000
Target
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Chapter 01: Introduction to Partnership
11
ii. Interest on Capital:
Rahul =60,000
10
100
=` 6,000
Sumit =30,000
10
100
=` 3,000
iii. Interest on Drawings:
Rahul =6,000
12
100
6
12
=` 360
Sumit =4,000
12
100
6
12
=` 240
[Note: When the amounts of total drawings are given but date of withdrawals are not given then for calculation of
interest on drawings, the period would be taken as six months.]
iv. Rahuls Salary =3,000 12 =` 36,000
v. Commission on sales to Sumit
5,00,000
5
100
=` 25,000
vi. Distribution of Profits:
Rahuls Share =30,000
2
3
=` 20,000
Sumits Share =30,000
1
3
=` 10,000
Q.9. Sona and Mona are partners. They started their business on 1-04-2012 on which date they contirbuted
` 3,00,000 each as their capital. On 1-07-2012, Sona purchased furniture of
` 60,000 for the firm from her personal resources. On 1-10-2012, Mona supplied her own Machinery
Costing ` 70,000 for the business of the firm. On 1-01-2013 Sona and Mona had withdrawn ` 30,000 & `
40,000 respectively for their personal use.
The Partnership Deed provides for Interest on Capital @ 7% p.a. and Interest on Drawings @ 10% p.a.
Sona is to get salary of ` 2,000 per month starting from 1-07-2012 and Mona is to get commission on sales
@ 10%. Sales for the year is ` 2,00,000 and Net Profit for the year is ` 50,000.
Prepare Capital and Current Account of the Partners in the following situations:
A. Fixed Capital Method B. Fluctuating Capital Method
Solution:
A. Fixed Capital Method:
Partners Capital Account
Dr. Cr.
Particulars
Sona
`
Mona
`
Particulars
Sona
`
Mona
`
By Cash/Bank A/c 3,00,000 3,00,000
By Furniture A/c 60,000
By Machinery A/c 70,000
To Balance c/d 3,60,000 3,70,000
3,60,000 3,70,000 3,60,000 3,70,000
Target
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Std. XII (Commerce): Book-Keeping & Accountancy
12
Partners Current Account
Dr. Cr.
Particulars
Sona
`
Mona
`
Particulars
Sona
`
Mona
`
To Drawings A/c 30,000 40,000 By Interest on Capital A/c 24,150 23,450
To Interest on Drawings A/c 750 1,000 By Salary A/c 18,000
By Commission A/c 20,000
By Profit & Loss A/c 25,000 25,000
To Balance c/d 36,400 27,450
67,150 68,450 67,150 68,450
B. Fluctuating Capital Method:
Partners Capital Account
Dr. Cr.
Particulars
Sona
`
Mona
`
Particulars
Sona
`
Mona
`
To Drawings A/c 30,000 40,000 By Cash/Bank A/c 3,00,000 3,00,000
To Interest on Drawings A/c 750 1,000 By Furniture A/c 60,000
By Machinery A/c 70,000
By Interest on Capital A/c 24,150 23,450
By Salary A/c 18,000
By Commission A/c 20,000
By Profit & Loss A/c 25,000 25,000
To Balance c/d 3,96,400 3,97,450
4,27,150 4,38,450 4,27,150 4,38,450
Working Notes:
i. Interest on Capital:
a. Calculation of Interest on Capital for Sona
Opening Capital =3,00,000
7
100
12
12
=` 21,000
Additional Capital =60,000
7
100
9
12
=` 3,150
Total Interest on Capital payable to Sona =21,000 +3,150 =` 24,150
b. Calculation of Interest on Capital for Mona
Opening Capital =3,00,000
7
100
12
12
=` 21,000
Additional Capital =70,000
7
100
6
12
=` 2,450
Total Interest on Capital payable to Mona =21,000 +2,450 =` 23,450
ii. Interest on Drawings:
a. Sona =30,000
10
100
3
12
=` 750
b. Mona =40,000
10
100
3
12
=` 1,000
iii. Sonas Salary:
2,000 9 =` 18,000
iv. Monas Commission:
2,00,000
10
100
=` 20,000
Target
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Chapter 01: Introduction to Partnership
13
Objective Type Questions
I. Answer in one sentence only: [1 mark each]
*1. What is partnership?
Ans: Partnership is an association of two or more persons who agree to combine their financial resources
and managerial abilities to conduct a business and share profits and losses in an agreed ratio
*2. How many persons are required to form partnership business?
Ans: Minimum two persons are required to form partnership business.
*3. What is the liability of partners?
Ans: The Liability of Partners is Unlimited, J oint and Several.
*4. What is the relation between the partners?
Ans: The relationship between partners is that of Principal and Agent.
*5. Who is called nominal partner?
Ans: A partner who lends his name to the firm but does not have any interest in the business is known as a
Nominal Partner.
*6. Who is called Minor partner?
Ans: A partner of less than 18 years in age is called Minor Partner.
7. What is the liability of the partner in profit only?
Ans: The Liability of a Partner in Profit only is Unlimited.
8. Who is a Partner by Estoppel?
Ans: The person who is not actually a partner but, represents himself as a partner in front of third parties is
known as Partner by Estoppel.
*9. What is partnership deed? [Mar 12, Oct 11]
Ans: Partnership Deed is the written agreement between or among the partners that lays down the terms
and conditions of partnership and the rights, duties and obligations of partners for the internal
management of the firm.
*10. Why is partnership deed prepared?
Ans: Partnership deed is prepared to resolve future conflicts and disputes among partners.
*11. Which act is applicable to partnership business?
Ans: The Indian Partnership Act, 1932 is applicable to partnership business.
12. At what rate is the Interest on Partners Loan is paid in the absence of provision in partnership
deed?
Ans: In the absence of a provision in partnership deed, Interest on Partners Loan is paid at 6% p.a.
*13. What are the methods of maintaining Partners Capital Account?
Ans: Fixed Capital Method and Fluctuating Capital Method are the two methods of maintaining Capital
Account of partners.
*14. What do you mean by Fixed Capital Method?
OR
What is Fixed Capital Method? [Mar 11]
Ans: Fixed Capital Method is a method of maintaining Capital Account of partner, where the capital is kept
fixed and all the other transactions are recorded by preparing Partners Current Account except, when
additional capital is introduced in the business or capital is withdrawn by a partner.
*15. What is Fluctuating Capital Method?
Ans: Fluctuating capital method is where all the transactions related to partners are recorded through
Partners Capital Account and there is no requirement to prepare Partners Current Account. In this
method, the capital of the partner is fluctuating.
*16. When is Partners Current Account opened?
Ans: Partners Current Account is opened under Fixed Capital Method.
Target
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Std. XII (Commerce): Book-Keeping & Accountancy
14
II. Write the word/ term/ phrase which can substitute each of the following statements: [1 mark each]
*1. An association of two or more persons to carry on business.
*2. A partnership agreement between the partners in written form.
3. Written terms of agreement between the partners.
4. The maximum number of partner in banking business.
*5. To close the business of partnership firm.
6. The relationship between partners.
*7. A partner who is engaged in day to day activities of the business.
8. Active partner is also called as.
*9. A partners who contributes only capital for the business but does not take any active part.
*10. A partner who provides only his name to the partnership firm. [Mar 08]
*11. A partner below the age of 18 years.
12. A partner whose liability is limited.
*13. The partner who is entitled to share profits only.
*14. A partner who acts and behaves like a partner, but he is not a partner of the firm.
*15. A amount contributed by the partners into the business.
*16. An amount withdrawn by partner from the business for his personal use.
*17. Under this method capital balances of partner remains constant.
*18. Capital method in which Partners Current Account is opened.
19. Capital method in which both, Capital Account and Current Account are maintained for each partner.
*20. Method of capital account in which capital balances of partners changes every year.
21. Capital Method under which only Partners Capital Account is maintained.
Ans: 1. Partnership 2. Partnership Deed
3. Partnership Deed 4. Ten
5. Dissolution 6. Principal and Agent
7. Active Partner 8. Working Partner
9. Sleeping Partner/Dormant Partner 10. Nominal Partner
11. Minor Partner 12. Minor Partner
13. Partner in Profit Only 14. Partner by Estoppel
15. Partners Capital 16. Drawings
17. Fixed Capital Method 18. Fixed Capital Method
19. Fixed Capital Method 20. Fluctuating Capital Method
21. Fluctuating Capital Method
III. Select the most appropriate alternative from those given below and rewrite the statements:
[1 mark each]
*1. Partnership is an association of _______ or more persons.
(A) two (B) seven
(C) ten (D) twenty
2. Partnership business must be _______.
(A) lawful (B) illegal
(C) voluntary (D) immoral
3. Minimum _______ persons are required to form a partnership.
(A) one (B) two
(C) three (D) seven
Target
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Chapter 01: Introduction to Partnership
15
*4. Maximum _______ persons are required to form a partnership having trading business.
(A) twenty (B) fifty
(C) seven (D) ten
*5. Maximum _______ persons are required to form a partnership having banking business.
(A) two (B) seven
(C) ten (D) twenty
*6. The liability of the partner in a firm is _______.
(A) zero (B) limited
(C) unlimited (D) proportionate
7. Partners are _______ liable for the debts of firm.
(A) individually (B) jointly
(C) several (D) personally
*8. A partner who provides only capital to the firm is called as _______.
(A) active (B) nominal
(C) sleeping (D) minor
9. A partner who does not take active part in the management of business is known as _______.
(A) Working Partner (B) Sleeping Partner
(C) Nominal Partner (D) Partners in Profit only
*10. A partner who lends only his name to the firm is called as _______ partner.
(A) partner in profits only (B) partner by estoppel
(C) nominal (D) minor
*11. A partner below 18 years of age is called as _______ partner.
(A) active (B) sleeping
(C) nominal (D) minor
12. In the absence of partnership deed the partners share profits and losses in the _______ ratio.
(A) capital (B) equal
(C) 1 : 2 (D) initial contribution
*13. The Indian Partnership Act is in force since _______. [Mar 10, Oct 10]
(A) 1932 (B) 1956
(C) 1960 (D) 1984
*14. The Interest on capital of a partner is credited to _______ Account.
(A) Trading (B) Profit and Loss
(C) Partners Capital (D) Cash
*15. The drawings of partners are transferred to _______ Account.
(A) Trading (B) Profit and Loss
(C) Partners Capital (D) Balance Sheet
*16. The interest on drawings is transferred to _______ side of Partners Current Account.
(A) debit (B) credit
(C) asset (D) liability
*17. If dates of drawings are not given interest on drawings is charged for _______ months.
(A) three (B) six
(C) nine (D) twelve
*18. Under fixed capital method, Capital Account and _______ Account is opened for each partner.
(A) Partners Drawing (B) Partners Salary
(C) Partners Current (D) Partners Commission
*19. Under Fixed Capital Method, salary or commission to partner is credited to _______ Account.
(A) Partners Capital (B) Partners Current
(C) Partners Drawings (D) Partners Salary
Target
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Std. XII (Commerce): Book-Keeping & Accountancy
16
*20. A debit balance of Partners Current Account will appear on the _______ side of the Balance Sheet.
(A) Assets (B) Liability
(C) Debit (D) Credit
21. The balance of Capital Account fluctuates under _______ Capital Method.
(A) Blocked (B) Fluctuating
(C) Fixed (D) Semi Blocked
22. Under _______ Capital Method only Capital Account of partners is opened.
(A) Fixed (B) Fluctuating
(C) Single (D) Double
IV. State whether the following statements are TRUE or FALSE: [1 mark each]
*1. Partnership is an association of two or more persons.
*2. Partnership firm is a trading concern.
*3. Partnership agreement must be in written form.
*4. There is no limit to maximum number of partners in a firm.
5. There can be partnership firm with 25 partners.
6. There can be partnership only for the sharing of loss.
*7. Partner must share profits and losses equally.
*8. If the partnership deed is silent, partners share profits and losses equally.
9. Each partner has a right to take part in the conduct of business.
10. Partners not taking an active part in the business is called sleeping partner.
11. The liability of the sleeping partner is limited.
*12. A partner who provides only capital to the firm is called as nominal partner.
13. A partner who gives only his name to the business is called nominal partner.
*14. The liability of minor partner is limited.
15. Partnership deed must always be in written form.
16. Partnership firm in India is governed according to Indian Partnership Act 1932.
*17. The interest on drawings is an income of the partnership firm.
*18. An interest on capital is an expenditure of the partnership firm.
*19. Partners are entitled to get salary or commission.
*20. The balance of capital account remains constant under fixed capital method.
*21. Partners Current Account is opened when fluctuating capital method is adopted.
*22. Partners current account always shows credit balance.
*23. Capital Account always shows credit balance.
24. Adjustments to partners capital are passed through Current Account when the capitals are fluctuating.
Ans: 1. True 2. True 3. False 4. False
5. False 6. False 7. False 8. True
9. True 10. True 11. False 12. False
13. True 14. True 15. True 16. True
17. True 18. True 19. False 20. True
21. False 22. False 23. False 24. False
Target
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Chapter 01: Introduction to Partnership
17
Quick Review
Types of Partners
i. Active Partner
ii. Sleeping Partner
iii. Nominal Partner
iv. Minor Partner
v. Partner in Profits only
vi. Partner by Estoppel
Methods of Capital Accounts
Fixed Capital Method Fluctuating Capital Method
Partners Capital Account Partners Current Account
Transactions
i. Amount
contributed
by a Partner at the
beginning.
ii. Additional Capital
introduced by a
Partner during the
Year.
iii. Part of Capital
amount Withdrawn
during the year.
Transactions
i. Amount
withdrawn
by Partners from
the business for
their personal use i.e.
Drawings in form of
Cash.
ii. Goods taken over
by Partners from the
business for their
personal use. i.e.
Drawing in form of
Goods.
iii. Interest on Partners
Capital.
iv. Interest on Partners
Drawings.
v. Salalry or
Commission to
Partners.
vi. Distribution of
Net Profit or Net
Loss of the
firm.
Partners Capital Account
Transactions
i. Amount
contributed
by a Partner at the
beginning / Opening
Capital Balance of
Partners.
ii. Additional Capital
brought by Partners.
iii. Salary or
Commission
Payable to partners.
iv. Interest on Capital.
v. Drawings and
Interest on
Drawings.
vi. Withdrawal of
Capital amount.
vii. Distribution of Net
Profit or Net Loss
of the firm.