CH-2

FUNDAMENTALS OF PARTNERSHIP

Definition
Partnership under section 4 of
Indian Partnership Act 1932 “The relation
between persons who have agreed to share
the profit of a business carried on by all or
any one of them acting for all.”
Partnership Deed Partnership Deed It is
an written agreement between the
partners and Accounts are prepared as per
partnership deed.
 Partnership without
Deed
It means when there is no agreement between the partner. If there is
dispute between the partner the following points considered

 No, Interest on capital is allowed to any partner

 No, Interest on Drawings is charged to any partner
 No, Interest on partner is current A/c is allowed to any partner
 No, Salary/ Remuneration / Commission/ Bonus is given to any
partner
 Interest on Loan / Advance is allowed @ 6% P.A
 Sharing of Profit or Loss equally
 No Partner shall be admitted without the consent of all partner
Illustration 1 (Provisions of the Indian Partnership Act, 1932).
Ambrish, Lalit and Charu are partners in a firm without a Partnership
Deed.
1) Ambrish, has contributed more capital than other partners and
demands interest on capital at 10% p.a. But Lalit and Charu do not agree
with him.
2) Lalit devotes full time in the business and demands a salary of ` 5,000
p.m. But Ambrish and Charu do not agree with him.
3) Charu demands interest on the loan of ` 50,000 given by her at the
market rate of interest, i.e., @ 12% p.a.
4) Ambrish has withdrawn ` 10,000 from the firm for his personal use.
Lalit and Charu demand that interest on drawings should be charged @
10% per annum.
5) Profit before taking into account any of the above claims was ` 50,000
at the end of the first year of the business. Ambrish demands share of
profit in the capital ratio.
6) Lalit wants to introduce his son Inder as partner. Charu objects to his
proposal. How will be the matters resolved?
Solution:

The partners do not have a Partnership Deed. Therefore, provisions of the

Indian Partnership Act, 1932 will apply to resolve the matters:
1) Interest on capital is not payable to partner. Therefore, Ambrish will not
get interest on the capital.
2)Remuneration is not payable to partner. Therefore, Lalit will not get
salary.
3)Interest on Loan by Partner is payable @ 6% p.a. Therefore, Charu will get
interest
` 3,000 (i.e., ` 50,000 × 6/100).
4)Interest on Ambrish’s Drawings will not be charged.
5)Profit after Interest on Loan by Charu, i.e., ` 47,000 is to be distributed
equally.
6) A person cannot be introduced as partner without the consent of
all the partners.
Therefore, Inder cannot be admitted into partnership because Charu
objects to it.
 ILLUSTRATION 4
Akhil and Bharat are partners sharing profits and losses in ratio of 2 : 3 with
capitals of 2,00,000 and 1,00,000 respectively.
On 1st October, 2019, Akhil and Bharat gave loans of 4,00,000 and `
2,00,000 respectively to the firm.
There is no agreement as to payment of interest on the loan by partner.
Determine the amount of profit or loss for the year ended 31st March,
2020 in each of the following cases to be distributed between the partners:

Case 1.If the Profit before interest for the year amounted to ` 25,000.
Case 2.If the Profit before interest for the year amounted to ` 15,000.
Case 3. If the Loss before interest for the year amounted to ` 25,000.
Solution:
When there is no agreement for payment of interest on loan by partner, as per
the Indian Partnership Act, 1932, interest @ 6% p.a. is allowed on loan by a
partner.
Case 1. Distributable Profit/Loss = Profit before Interest – Interest on Loan by
Partners
= ` 25,000 – ` 18,000* = ` 7,000.

*Interest on Loan by Akhil (` 4,00,000 × 6/100 × 6/12 ) =12,000

Interest on Loan by Bharat (` 2,00,000 × 6/100 × 6/12) = ` 6,000
Total ` 18,000

Case 2Distributable Profit/Loss = Profit before Interest – Interest on Loan by

Partners
= ` 15,000 – ` 18,000 = ` 3,000 (Loss).
Interest on loan by partner being a charge against profit is paid or credited to
Loan by Partners Account even if profit is less than the amount of interest on
loan. The resulting loss is distributed between partners in the profit-sharing
ratio.

Case 3. Distributable Profit/Loss = Loss before Interest + Interest on Loan by

Partners
= ` 25,000 + ` 18,000 = ` 43,000 (Loss).
Profit & Loss Appropriation A/C
MEANING

Profit & Loss Appropriation A/C is

prepared for allocation and Distribution
of Profit.
 Profit & Loss Appropriation A/C

for the year ended………..

Particulars Amount (Dr.) Particular Amount
(cr.)
To Net Loss b/d By Net Profit b/d
To Interest on capital Less:InterestonPartners
To Partner’s salary Loan
To Partner’s commission Less: Manager
To General Reserve Commission
Less: Rentpaid to
To Profit T/f to Partners
Partner’s capital By Intereston Drawings
Partner’s Current A/c (B.F.) By Loss T/f to
partner’s capital/
Partner’s currentA/c (B.F.)
 JOURNAL ENTRIES
OF
P&L App A/c
For Interest on Capital
Interest on capital A/c Dr.
To Partner’s capital/current A/c
(Being Interest credited to partner’s capital/
current A/c)
P & L Appropriation A/c Dr.
To Interest on capital A/c
(Being interest on capital changed to P & L App
A/c)
For Interest on Drawings
Partner’s capital/ current A/c Dr.
To Interest on drawings A/c
(Being interest charged on drawings )

Interest on drawings A/c Dr.

To P& L App A/c
(Being interest on drawings T/f to P& L App A/c)
For Interest on Loan / Advance

Interest on partner’s loan A/c Dr.

To Partner’s Loan A/c (Not Cap)

P& L A/c (Not P/L Appro) Dr.

To Interest on partner loan A/c
 For Partner’ Salary /commission
Salary/Commission A/c Dr.
To Partner’s Capital/current A/c
(Being Salary/ commission allowed to
partner)

P & L (App) A/c Dr.

To Salary / commission to partner A/c
To close of Profit or Loss on Appropriation A/c If
Profit
P & L (App) A/c Dr.
To Partner’s capital/current A/c

If Loss
Partner’s capital/current A/c Dr.
P & L (App) A/c
 PROFIT AND LOSS APPROPRIATION ACCOUNT

DR CR
Particulars Amount(Rs) Particulars Amount (Rs)

Prem’s salary Profit and Loss A/C 90,575

2500x12 30,000
Commission 10,000 Interest on drawings
Interest on Capital Prem 1,250
Prem 10,000 Manoj 425 1,675
Manoj 7500 17,500
Profit tranferred to
Prem 20,850
Manoj 13,900 34,750
82,250
82,250
 Ques 14

X, Y and Z are partners in a firm sharing profits in 2 : 2 : 1

ratio. The fixed capitals of the partners were : X 5,00,000; Y
5,00,000 and Z 2,50,000 respectively. The Partnership Deed
provides that interest on capital is to be allowed @ 10% p.a. Z
is to be allowed a salary of 2,000 per month. The profit of the
firm for the year ended 31st March, 2018 after debiting Z's
salary was 4,00,000.
Prepare Profit and Loss Appropriation Account.
.

PROFIT AND LOSS APPROPRIATION A/C

Particulars Amount Particulars Amount

Rs Rs
Interest on Capital: Profit and Loss A/c 4,00,000
NetProfit after

r. Cr Z′s salary
X 50,000
Y 50,000
Z 25,000 1,25000
Profit transferred to:
X’s Capital A/c 1,10,000
Y’s Capital A/c 1,10,000 2,75,000
Z’s Capital A/c 55,000
4,00,000 4,00,000

Working Notes:

WN 1 Salary to Z has not been debited to Profit and Loss

Appropriation Account. This is because Profit of Rs
4,00,000 is given after adjusting the Z’s salary.
 Ques 15

X and Y are partners sharing profits in the ratio of 3 : 2 with

capitals of 8,00,000 and 6,00,000 respectively. Interest on
capital is agreed @ 5% p.a. Y is to be allowed an annual salary
of 60,000 which has not been withdrawn. Profit for the year
ended 31st March, 2019 before interest on capital but after
charging Y's salary amounted to 2,40,000.
A provision of 5% of the profit is to be made in respect
commission to the manager. Prepare an account showing the
allocation profits.
 Profit and Loss Adjustment Account
for the year ended 31st March 2019
Dr. Cr.
Particulars Amount Particulars Amount

Manager’s Commission 15,000 Profit and Loss A/c 2,40,000

3, 00, 000 × 5 (Net Profit after Y′s salary)
Y’s Salary 60,000
Profit transferred to
Profit and loss
Appropriation A/c 2,85,000

3,00,000 3,00,000
 Profit and Loss Appropriation Account
Amount Amount
Particulars Particulars
for the year ended 31st March 2019
Salary to Y 60,000 Profit and Loss Adjustment A/c 2,85,000
After manager′scommission
Interest on Capital

X 40,000
Y 30,000 70,000
Profit transferred to:

X’s Capital A/C 93,000

Y’s Capital A/C 62,000 1,55,000

2,85,000 2,85,000

Working Notes:
WN 1 Calculation of Manager’s Commission
Profit for making Managers’ Commission = 2,40,000 + 60,000 Y′sSalary = 3,00,000
 Ques 18

Reema and Seema are partners sharing profits equally. The Partnership Deed
provides that both Reema and Seema will get monthly salary of Rs 15,000 each,
Interest on Capital will be allowed @ 5% p.a. and Interest on Drawings will be
charged @ 10% p.a. Their capitals were Rs 5,00,000 each and drawings during the
year were Rs 60,000 each.
The firm incurred a loss of Rs 1,00,000 during the year ended 31st March, 2018.
Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2018.
 Profit and Loss Appropriation Account
for the year ended March 31, 2018

Particulars Amount Particulars Dr. Cr. Amount

Rs Rs
Profit and Loss A/c 1,00,000 Interest on Drawings A/c:
Reema 3,000
Seema 3,000 6,000
Loss transferred to
Reema 47,000
Seema 47,000 94,000
1,00,000 1,00,000
Note: Since the firm has incurred loss, no interest on capital and salary will be
allowed to the partners. However, interest on drawings will be charged from each
of them @ 10% p.a. on the amounts withdrawn by them for an average period of
six months.
 Ques 19

Bhanu and Partab are partners sharings profits equally. Their

fixed capitals as on 1st April, 2018 are 8,00,000 and 10,00,000
respectively. Their drawings during the year were 50,000 and
1,00,000 respectively. Interest on Capital is a charge and is to
be allowed @ 10% p.a. and interest on drawings is to be
charged @ 15% p.a. Net Profit for the year ended 31st
March, 2019 was 1,20,000.
Prepare Profit and Loss Appropriation Account.
 Profit and Loss Appropriation Account
for the year ended March 31, 2019

Particulars Amount Particulars Amount

Interest on Capital A/c Profit and Loss A/c 1,20,000

Bhanu’s Current A/c 80,000 1,80,000 Interest on Drawings A/c:
Partap’s Current A/c 1,00,000 Bhanu’s Current A/c 3,750
Partap’s Current A/c 7,500

11,250

Loss transferred to
Bhanu’s Current A/C
Partap’s Current A/C 24,375
48,750
24,375
INTEREST ON CAPITAL
Note:-1Interest on capital is always calculated
on opening capital Balance.
2 Interest on capital is always an appropriation
of Profits,if nothing specified.
Calculation of Opening Capital
In case of Fixed Capital
Closing Capital
Add Withdrawals of Capital
Less Additional Capital IntroducedCapital at the
beginning OR Opening Capital (B.F)
In case of Fluctuating capital A/c
Closing Capital
Add Drawings / Withdrawal of Capital
Add Share of Loss
Add Interest on Drawing ( If already Adjusted)
Less Additional Capital
Less Share of Profit
Capital at the beginning OR Opening Capital
(B.F.)
 Ques 21

Kamal and Kapil are partners having fixed capitals of

5,00,000 each as on 31st March, 2018. Kamal
introduced further capital of 1,00,000 on 1st October,
2018 whereas Kapil withdrew 1,00,000 on 1st
October, 2018 out of capital.
Interest on capital is to be allowed @ 10% p.a.
The firm earned net profit of 6,00,000 for the year
ended 31st March 2019.
Pass the Journal entry for interest on capital and
prepare Profit and Loss Appropriation Account.
 Debit Amount Credit Amount
Date
2019
Particulars L.F.
March 31
Profit & Loss Appropriation A/c Dr. 1,00,000
55,000
To Kamal’s Current A/C
45,000
To Kapil’s Current A/c
Interest on capital transferred to Profit & Loss
Appropriation A/C

Amount Amount
Particulars Particulars
Interest on Capital A/c: Profit and Loss A/c 6,00,000
Kamal 55,000
Kapil 45,000 1,00,000
Profit transferred to:
Kamal’s Current A/C 2,50,000
Kapil’s Current A/C 2,50,000
5,00,000
6,00,000 6,00,000
Working Notes:

WN1: Calculation of Interest on Capital:

• Kamal=5,00,000x10= 50,000
100

+ 55000
=1,00,000x10x6=5,000
100x12

• Kapil 5,00,000x10x6 = 25,000

100x12

45,000
=4,00,000x10x6=20,000

100x12
 Ques 22
Ques 22

Simran and Reema are partners sharing profits in

the ratio of 3 : 2. Their capitals as on 31st March,
2018 were 2,00,000 each whereas Current Accounts
had balances of 50,000 and 25,000 respectively
interest is to be allowed @ 5% p.a. on balances in
Capital Accounts. The firm earned net profit of
3,00,000 for the year ended 31st March 2019.
Pass the Journal entries for interest on capital and
distribution of profit. Also prepare Profit and Loss
Appropriation Account for the year.
 Debit Amount Credit Amount
Date Particulars L.F
.

Profit & Loss Appropriation A/c 20,000

To Simran’s Current A/c 10,000
To Reema’s Current A/c 10,000
Interest on capital transferred to Profit &
Loss appropriation A/C
Profit & Loss Appropriation A/c 2,80,000
To Simran’s Current A/c 1,68,000
To Reema’s Current A/c 1,12,000
ProfittransferredtoPartners′CurrentA/c
Working Notes:

WN1: Calculation of Interest on Capital

Simran's Interest on Capital = 2,00,000 × 5/100= Rs 10,000

Reema's Interest on Capital = 2,00,000 × 5/100 = Rs 10,000

 Profit and Loss Appropriation Account
for the year ended 31 March 2019
Amount Amount
Particulars Particulars
Interest on Capital A/c: Profit and 3,00,000
Simran 10,000 Loss A/c
Reema 10,000 20,000
Profi
transferred to:
Simran’s
CurrentA/c 1,68,000

Reema’s
Current A/c 1,12,000 2,80,000

3,00,000 3,00,000
 Ques 25

Naresh and Sukesh are partners with capitals of

3,00,000 each as on 31st March, 2019. Naresh had
withdrawn 50,000 against capital on 1st October, 2018
and also 1,00,000 besides the drawings against profit.
Sukesh also had drawings of 1,00,000.

Interest on capital is to be allowed @ 10% p.a.

Net profit for the year was 2,00,000, which is yet to be
distributed. Pass the Journal entries for interest on
capital and distribution of profit.
 Debit Credit Amount
Date Particulars L.F. Amount
2019
March
31
Profit & Loss Appropriation A/c Dr. 82,500
To Naresh’s Capital A/c To 42,500
Sukesh’s Capital A/c 40,000
Interest on capital transferred to Profit & Loss
Appropriation A/c
Profit & Loss Appropriation A/c Dr. 1,17,500
To Naresh’s Capital A/c 58,750
To Sukesh’s Capital A/c 58,750
Profittransferredto Partners′CapitalA/c

Particulars Naresh Sukesh

Capital at the end 3,00,000 3,00,000

Add: Drawings out of capital
50,000 -
Add: Drawings against
profit 1,00,000 1,00,000
Capital at the beginning 4,50,000 4,00,000

Naresh=450,000X10X6 +4,00,000X10X6 =42,500

100X12 100X12
Sukesh= 400,000X10=40,000
100
 Ques 26

On 1st April, 2013, Jay and Vijay entered into

partnership for supplying laboratory equipments to
government schools situated in remote and backward
areas. They contributed capitals of 80,000 and 50,000
respectively and agreed to share the profits in the
ratio of 3 : 2. The partnership Deed provided that
interest on capital shall be allowed at 9% per annum.
During the year the firm earned a profit of 7,800.
Showing your calculations cleary, prepare 'Profit and
Loss Appropriation Account' of Jay and Vijay for the
year ended 31st March, 2014.
 Amount Amount
Rs Particulars Rs
Particulars
Interest on Profit and Loss A/c
Capital A/c: 4,800
3,000 7,800
Jay
Vijay
7,800
7,800
Working Notes:

WN1: Calculation of Interest on Capital

WN2: Calculation of Proportionate Interest on Capital

Note: Interest on capital is to be treated as an appropriation of profits and is to be

provided to the extent of available profits i.e. Rs 7,800.
FORMULA FOR CALCULATING PARTNER’S COMMISSION

• Percentage of net profit before charging such commision

Net profit( before commission)X Rate of Commission
100

• Percentage of net profit after charging commission

Net profit( before commission)X Rate of Commission
100 + Rate of commission
 Ques 33
X, Y and Z are partners sharing profits and losses equally. As per
Partnership Deed, Z is entitled to a commission of 10% on the
net profit after charging such commission. The net profit before
charging commission is 2,20,000.
Determine the amount of commission payable to Z.
Net Profit before charging Commission = Rs 2,20,000

Commission to Z = 10% of on Net Profit after charging such

commission
 Ques 34

A, B, C, and D are partners in a firm sharing profits as 4 : 3 : 2 : 1

respectively. It earned a profit of 1,80,000 for the year ended 31st
March, 2018. As per the Partnership Deed, they are to charge a
commission @ 20% of the profit after charging such commission
which they will share as 2 : 3 : 2 : 3. You are required to show
appropriation of profits among the partners.

Particulars Amount Particulars Amount

Rs Rs
Partners’ Commission: Profit and Loss A/c NetProfit 1,80,000
A 6,000
B 9,000
C 6,000 30,000
D 9,000
Profit transferred to: A’s Capital
A/c B’s Capital A/c C’s Capital 60,000
A/c D’s Capital A/c 45,000
30,000
1,50,000
15,000
1,80,000 1,80,000
Working Notes:

WN 1 Calculation of Partners’ Commission

Partners’ Commission = 20% on Net Profit after charging such commission

This commission is to be shared by the partners in the ratio of 2 : 3 : 2 : 3

WN 2 Calculation of Profit Share of each Partner

Profit available for Distribu on = 1,80,000 − 30,000 = Rs 1,50,000 Profit sharing ratio
=4:3:2:1
 Ques 35

X and Y are partners in a firm. X is entitled to a salary of 10,000

per month and commission of 10% of the net profit after
partners' salaries but before charging commission. Y is entitled
to a salary of 25,000 p.a. and commission of 10% of the net
profit after charging all commission and partners' salaries.
Net profit before providing for partners' salaries and
commission for the year ended 31st March, 2019 was
4,20,000. Show distribution of profit.
Working Notes:

WN 1 Calculation of Commission

Commission to X = 10% of Net Profit after partners’ salaries but before charging such
commission Profit a er Partners’ Salaries = 4,20,000 − 1,45,000 = 2,75,000

Commission to Y = 10% of Net Profit after charging Commission and Partners’ Salaries

Profit a er commission and partners’ salaries = 4,20,000 − 1,45,000 − 27,500 =

2,47,500
 Particulars Amount Particulars Amount
Rs Rs
Partners’ Salary Profit and Loss A/c 4,20,000
X 120,000 NetProfit
Y 25,000 1,45,000

Partner’s commission
X 27,500
Y 22,500 50,000 Dr. Cr.

Profit
transferred to:
X’s Capital A/c 1,12,500
1,12,500
Y’s Capital A/c
2,25,000

4,20,000 4,20,000
INTEREST ON PARTNER’S DRAWINGS
I Date of Drawings is not given –
It is to be considered on an average period of 6 months
Amount of Drawings X rate of DrawingsX6/12

II Drawings are made on the same day and of same amount in every month or
in every Quarter.

III Drawings are made on different days in different months

II Drawings are made on the same day and of same amount in every
month or in every Quarter.
FORMULA – Time left after 1 Drawings +Time left after last Drawings
2
• MONTHLY DRAWINGS
1. Same amount on the FIRST day of every month i.e,
1 Jan ……………………….1 Dec

= 12 +1 = 6.5
2

2 Same amount on the FIFTEENTH day of every month i.e,

15 Jan ……………………….15Dec

= 11.5 +0.5 = 6
2
3 Same amount on the LAST day of every month i.e,
31 Jan ……………………….31Dec

= 11 +0 = 5.5
2
QUARTERLY DRAWINGS
i)Same amount on the FIRST day of every Quarter i.e,
Drawings are on 1 Jan, 1 Ap,1 July,1 oct
= 12+3 = 7.5
2
ii) Same amount on the middle day of every Quarter i.e,
Drawings are 15 feb,15 May, 15 Aug,15 Nov
= 10.5 + 1.5 = 6
2
iii)Same amount on the last day of every Quarter i.e,
Drawings are on 31 Mar, 30 June, 30 Sep, 31 Dec
= 9+0 =4.5
2
I QUARTER II QUARTER III QUARTER IV QUARTER

JAN APR JULY OCT

FEB MAY AUG NOV

MAR JUNE SEP DEC

Drawings are made for 6 months
• On first day for 6 months
= 6+1 = 3.5
2
• In the middle of every month for 6 months

5.5 + 0.5 =3
2

• On the Last day of every month for 6 months

5 + 0 = 2.5
2
 Time Period for the calculation of Interest on Drawings

For 12 For 6 In every

months months Quarter
On first day 6.5 3.5 7.5
In the middle 6 3 6
On the last 5.5 2.5 4.5
 Q36
Ram and Mohan, two partners, drew for their personal use 1,20,000 and 80,000.
Interest is chargeable @ 6% p.a. on the drawings. What is the amount of interest
chargeable from each partner?
Date of drawings made by the partners is not given. Therefore, interest on drawings
is calculated on average basis for a period of six months.

Q37
Brij and Mohan are partners in a firm. They withdrew 48,000 and 36,000
respectively during the year evenly in the middle of every month. According to the
partnership agreement, interest on drawings is to be charged @ 10% p.a.
Calculate interest on drawings of the partners using the appropriate formula.
The drawings are made evenly at the middle of every month, therefore interest on
drawings is calculated for a period of six months.
Interest on Brij's Drawings = (48, 000 × 6x 10 ) = Rs 2,400
12 x100
Interest on Mohan's Drawings = (36, 000 × 10 x 6 ) = Rs 1800
12 x 100
 Q39
A and B are partners sharing profits equally. A drew regularly 4,000 in the beginning
of every month for six months ended 30th September, 2019. Calculate interest on
drawings @ 5% p.a. for a period of six months

Interest on Drawings = 24,000 X5/100 X 3.5/12 = Rs 350

Q40
One of the partners in a partnership firm has withdrawn 9,000 at the end of
each quarter, throughout the year. Calculate interest on drawings at the rate of
6% per annum.
Amount of Drawings = 9,000 per quarter
Annual Drawings= 9, 000 × 4 = 36,000

Interest on Drawings
= 36, 000 × 6/100 × 4.5/12 = 810
 Q43
Kanika and Gautam are partners doing a dry cleaning business in Lucknow, sharing profits
in the ratio 2 : 1 with capitals 5,00,000 and 4,00,000 respectively. Kanika withdrew the
following amounts during the year to pay the hostel expenses of her son:
1 April Rs 10,000
1 June Rs 9,000
1 November Rs 14,000
1 December Rs 5,000

Gautam withdrew 15,000 on the first day of April, July, October and January
to pay rent for the accommodation of his family. He also paid 20,000 per
month as rent for the office of partnership which was in a nearby shopping
complex.
Calculate interest on drawings @ 6% p.a.
Interest on Kanika’s Drawings = Rs 1,500
Interest on Gautam’s Drawings = Rs 2,250
Working Notes:
WN1: Calculation of Interest on Kanika’s
Drawings
By Product Method
Amount Months Product
(I × II)
Date I II
Apr. 01 10,000 12 1,20,000
June 01 9,000 10 90,000
Nov. 01 14,000 5 70,000
Dec. 01 5,000 4 20,000
Sum of Product
3,00,000

WN2: Calculation of Interest on Gautam’s

Drawings
Gautam withdrew Rs 15,000 in the beginning
of every quarter.
Partner’s Capital A/c
There are two types of Partner’s capital methods

1.Fixed Capital A/c method :-while preparing Fixed

capital A/c we have to prepare two A/c
1. Partner’s capital A/c
2. Partner’s current A/c
In Fixed capital A/c All Adjustment is T/F to Partner’s
current A/c
2. Fluctuating Capital A/c methods: Only one account –
Capital account is prepared and all Adjustment is T/F to
Partner’s capital A/c
When Fixed Capitals Accounts Method is adopted
When Fluctuating Capital Accounts Method is Adopted
 Q47

A and B are partners sharing profits and losses in the ratio of 3 : 1. On 1st April,
2018, their capitals were: A 50,000 and B 30,000. During the year ended 31st
March, 2019 they earned a net profit of 50,000. The terms of partnership are:

a Interest on capital is to allowed @ 6% p.a.

b A will get a commission @ 2% on turnover.
c B will get a salary of 500 per month.
d B will get commission of 5% on profits after deduction of all expenses including
such commission.
Partners' drawings for the year were: A 8,000 and B 6,000. Turnover for the year
was 3,00,000.
After considering the above facts, you are required to prepare Profit and Loss
Appropriation Account and Partners' Capital Accounts.
Working Notes:

WN 1 Calculation of Interest on Capital

WN 2 Calculation of Commission to Partners

Commission to B = 5% on Profits after all Expense including such

Commission Profits a er all expense = 50,000 − 4,800 − 6,000 −
6,000 = Rs 33,200

WN 3 Calculation of Profit Share of each Partner

Profit available for Distribu on = 50,000 − 4,800 − 6,000 −7,581 =

Rs 31,619 Profit sharing ratio = 3 : 1
 Profit and Loss appropriation A/c
Particulars
Amount Particulars Amount

Interest on Capital: Profit and Loss A/c 50,000

A 3,000 NetProfit
B 1,800 4,800
B’s Salary 500 × 12
6,000
Partner’s Commission
A
6,000
B 1,581
Profit transferred to: 7,581
A’s Capital A/c
B’s Capital A/c
23,714
7,905
Dr.
31,619
Cr.

50,000 50,000

Partner’s Capital A/c

Particulars A B Particulars A B
Drawings A/c 8,000 6,000 Balance b/d 50,000 30,000
Interest on Capital A/c 3,000 1,800
Commission A/c 6,000 1,581
Salary A/c 6,000
Balance c/d 74,714 41,286
P/L Appropriation A/c 23,714 7,905
82,714 47,286 82,714 47,286
 Ques 48
Sajal and Kajal are partners sharing profits and losses in the ratio of 2 : 1. On 1st
April, 2019 their Capitals were: Sajal – 50,000 and Kajal – 40,000. Prepare Profit and
Loss Appropriation Account and the Partners' Capital Accounts at the end of the
year after considering the following items:
a Interest on Capital is to be allowed @ 5% p.a.
b Interest on the loan advanced by Kajal for the whole year, the amount of loan
being 30,000.
c Interest on partners' drawings @ 6% p.a. Drawings: Sajal 10,000 and Kajal 8,000.
d 10% of the divisible profit is to be transferred to Reserve.

Net profit for the year ended 31st March, 2020 is 70,260
Solution
WN 1 Calculation of Amount to be transferred to Reserve
Amount for Reserve = 10% of Divisible Profit
Divisible Profit = Profit + Interest on Drawings − Interest on Capital
= 68,460 + 540 − 4,500 = Rs 64,500
69,000

Particulars Amount Particulars Amount

Interest on Kajal’s loan@ 6% p.a. 1,800 Profit 70,260
Profit transferred to P/L 68,460
Appropriation A/c 70,260
70,260

PARTICULARS AMOUNT PARTICULARS AMOUNT

Interest on Capital A/c Profit & Loss A/C 68,460
Sajal 2,500
Kajal 2,000 4,500 Interest on Drawings
A/c
Reserve 6,450 Sajal 300
Kajal 240 540
Profit transferred to Cr.

Sajal 38,700
Kajal 19,350 58,050

69,000 69,000

Particulars Sajal Kajal Particulars Sajal Kajal

Drawings A/c 10,000 8,000 Balance b/d 50,000 40,000
Interest on Drawings A/c 300 240 Interest on Capital A/c 2,500 2,000
38,700 19,350
Balance c/d 80,900 53,110 P&L Appropriation A/c
91,200 61,350 91,200 61,350

4,500
 Q49

Ali the Bahadur are partners in a firm sharing profits and losses
as Ali 70% and Bahadur 30%. Their respective capitals as at 1st
April, 2018 stand as Ali 25,000 and Bahadur 20,000. The partners
are allowed interest on capitals @ 5% p.a. Drawings of the
partners during the year ended 31st March, 2019 amounted to
3,500 and 2,500 respectively.
Profit for the year, before charging interest on capital and annual
salary of Bahadur @ 3,000, amounted to 40,000, 10% of divisible
profit is to be transferred to Reserve. You are asked to show
Partners' Current Account and Capital Accounts recording the
above transactions.
 PARTNER”S CAPITAL A/C
Particulars Ali Bahadur Particulars Ali Bahadur
Balance b/d 25,000 20,000
Balance c/d 25,000 20,000
25,000 20,000 25,000 20,000

PARTNER’S CURRENT A/C

Particulars Ali Bahadur Particulars Ali Bahadur

Drawings A/c 3,500 2,500 Interest on Capital 1,250 1,000
A/c
Bahadur’s Salary A/c 3,000
Balance c/d 19,642 10,883 P/L Appropriation A/c 21,892 9,383
23,142 13,383 23,142 13,383
 Particulars Amoun Particulars Amount
t
Interest on Capital: Profit and Loss A/c 40,000
Ali 1,250
Bahadur 1,000 2,250
Reserve 3,475
Bahadur’s Salary 3,000
Profit transferred to:

Ali’s Capital A/c 21,892

Bahadur’s Capital A/c 9,383 31,275
40,000 40,000

WN 2 Calculation of Amount to be transferred to Reserve

Amount transferred to Reserve = 10 % of Divisible Profits

= 10 % ×(40, 000 - 2, 250 - 3, 000) = Rs 3, 475
 Ques 51
A, B and C were partners in a firm having capitals of 50,000 ; 50,000 and
1,00,000 respectively. Their Current Account balances were A: 10,000; B:
5,000 and C: 2,000 Dr. . According to the Partnership Deed the partners
were entitled to an interest on Capital @ 10% p.a. C being the working
partner was also entitled to a salary of 12,000 p.a. The profits were to be
divided as:
a The first 20,000 in proportion to their capitals.
b Next 30,000 in the ratio of 5 : 3 : 2.
c Remaining profits to be shared equally.
The firm earned net profit of 1,72,000 before charging any of the above
items.
Prepare Profit and Loss Appropriation Account and pass necessary Journal
entry for the appropriation of profits.
Total Profit Share of C = 10,000 + 6,000 + 30,000 = Rs 46,000

Particulars Amount Particulars Amount

Interest on Capital: Profit and Loss A/c 1,72,000
A 5,000 NetProfit
B 5,000
10,000 20,000
C
Salary to C 12,000
Profit transferred to:
A’s Current A/c
50,000
B’s Current A/c
44,000
C’s Current A/c 1,40,000
46,000
1,72,000 1,72,000

WN 2 Calculation of Profit Share of each Partner

Profits available for Distribution = 1,72,000 − 20,000 − 12,000= Rs 1,40,000
•Distribution of first Rs 20,000 in the Capital Ratio i.e. 1:1:2
•Distribution of Next Rs 30,000 in the ratio of 5:3:2
•Remaining Profit available for distribution = Rs 1,40,000 − 20,000 − 30,000=
Rs 90,000
This profit of Rs 90,000 is to be shared equally by the partners.
Therefore,
Total Profit Share of A = 5,000 + 15,000 + 30,000 = Rs 50,000
Total Profit Share of B = 5,000 + 9,000 + 30,000 = Rs 44,000
Total Profit Share of C = 10,000 + 6,000 + 30,000 = Rs 46,000
 Debit Credit
Date Particulars L. Amount Amount
F.
Interest on Capital A/c Dr. 20,000
To A’s Current A/c 5,000
To B’s Current A/c 5,000
To C’s Current A/c
IInterestonpartners′capitalallowedtopartners 10,000
12,000
Salary A/c
Dr.
To C’s Current A/c 12,000
( Being Salary allowedtoC
Profit and Loss Appropriation A/c Dr. 1,40,000
To A’s Current A/c 50,000
To B’s Current A/c 44,000
To C’s Current A/c
Profitavailablefordistributiontransferredtopartners′ 46,000
currentaccounts
 Q 53
Amit, Binita and Charu are three partners. On 1st April, 2018,
their Capitals stood as: Amit 1,00,000, Binita 2,00,000 and
Charu 3,00,000. It was decided that:
a they would receive interest on Capital @ 5% p.a.,
b Amit would get a salary of 10,000 per month,
c Binita would receive commission @ 5% of net profit after
deduction of commission, and
d 10% of the net profit would be transferred to the General
Reserve.
Before the above items were taken into account, the profit for
the year ended 31st March, 2019 was 5,00,000. Prepare Profit
and Loss Appropriation Account and the Capital Accounts of the
partners
 PARTICULARS AMOUNT(Rs) PARTICULARS AMOUNT(Rs)

Interest on Capital Profit & Loss A/c

Amal 2,000 (4,61,000---1500) 33,360
Bimal 1,500
Kamal 1,250 4,750

Bimal’s Capital A/C

Commission 985

Amal’s Capital A/C

Salary 3,000

2,462
Reserve
50,000
Profit Transferred to
Amal’s Capital A/c 7,388
Bimal’s Capital A/C 7,388
Kama’s Capital A/C 7,387 22,163

33,360 33,360

Particulars Amit Binita Charu Particulars Amit Binita Charu

Balance b/d 1,00,000 2,00,000 3,00,000
Interest on capital A/c 5,000 10,000 15,000

Salary A/c 1,20,000 – –

Commission – 23,810 –
Balance c/d 3,17,063 3,25,873 4,07,064 P/L 92,063 92,063 92,064
Appropriation A/C

3,17,063 3,25,873 4,07,064 3,17,063 3,25,873 4,07,064

WN 1 Calculation of Commission to Binita

Commission to Binita = 5% on Net Profits after Commission

5
= 5, 00, 000 × 105 = Rs 23, 810

WN 2 Calculation of Amount to be transferred to General Reserve

Amount for General Reserve = 10% of Profit

10
= 5, 00, 000 × 100 = Rs 50, 000
 Ques 56
X and Y entered into partnership on 1st April, 2017. Their capitals as on 1st April, 2018
were 2,00,000 and 1,50,000 respectively. On 1st October, 2018, X gave 50,000 as loan
to the firm. As per the provisions of the partnership Deed:
20% of Profits before charging interest on Drawings but after making appropriations to
be transferred to General Reserve.
Interest on capital at 12% p.a. and Interest on Drawings @ 10% p.a.
X to get monthly salary of 5,000 and Y to get salary of 22,500 per quarter.
X is entitled to a commission of 5% on sales. Sales for the year were 3,50,000.
Profit to be shared in the ratio of their capitals up to 1,75,000 and balance equally.
Profit for the year ended 31st March, 2019 before allowing or charging interest was
4,61,000. The drawings of X and Y were 1,00,000 and 1,25,000 respectively. Pass the
necessary Journal entries relating to appropriation out of profit. Prepare Profit and
Loss Appropriation Account and the Partners' Capital Accounts.
PARTICULARS AMOUNT(Rs) PARTICULARS AMOUNT(Rs)

Interest on Capital Profit & Loss A/c

X 24,000 (4,61,000---1500) 4,59,500
Y 18,000 42,000
Interest on Drawings A/C
X’s Capital A/C X 5,000
Commission (3,50,000X5/100) 17,500 Y 6,250 11,250

Salary
X 60,000
Y 90,000
1,50,000
Reserve
50,000
Profit Transferred to
X 1,18,125
Y 93,125
2,11,250

4,70,750 4,70,750

Particulars X Y Particulars X Y
Drawings A/c 1,00,000 1,25,000 Balance b/d 2,00,000 1,50,000
Interest on Drawings 5,000 6,250 Interest on 24,000 18,000
Capital
A/c
Salary A/c 60,000 90,000
Commission A/c 17,500
Balance c/d 3,14,625 2,19,875 P/L Appropriation 1,18,125 93,125
A/C
4,19,625 3,51,125 4,19,625 3,51,125
Working Notes:
WN1: Calculation of Reserve
Profit before charging Interest on Drawings but after making appropriations
= 4, 59, 500 − 42, 000 − 17, 500 − 60, 000 − 90, 000
= 2, 50, 000
20
Reserve = 2,50,000 × 100 = Rs 50,000
WN2: Division of Profit

Partners Up to Rs Rs 36,250 Total

1,75,000 AboveRs1, 75, 000
X 1,00,000 18,125 1,18,125

Y 75,000 18,125 93,125

 Ques 71
Mudit, Sudhir and Uday are partners in a firm sharing profits
in the ratio of 3 : 1 : 1. Their fixed capital balances are
4,00,000, 1,60,000 and 1,20,000 respectively. Net profit for
the year ended 31st March, 2018 distributed amongst the
partners was 1,00,000, without taking into account the
following adjustments:
a Interest on capitals @ 2.5% p.a.;
b Salary to Mudit 18,000 p.a. and commission to Uday
12,000.
c Mudit was allowed a commission of 6% of divisible profit
after charging such commission. Pass a rectifying Journal
entry in the books of the firm. Show workings clearly.
 In the books of Mudit, Sudhir and Uday Journal

Debit Amount Credit Amount

Date Particulars L.F.

2018 Sudhir’s Current A/c Dr.

March 31 6,000
To Mudit’s Current A/c To 1,000
Uday’s Current A/c
Beingadjustmententrypassedforrectificationof 5,000
errors
 Working Notes:
Divisible Profits = Profits before appropriation – InterestonCapital - Salary -
Uday′sCommission
= 1,00,000 – 17, 000 -18, 000 -12, 000 = 53,000
Mudit’s Commission = DivisibleProfit × Rate/100 + Rate
= 53, 000 × 6/106 = 3,000

Table Showing Adjustment

Particulars Mudit’s Current Sudhir’s Uday’s Current Firm
A/c Current A/c A/c
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Profits wrongly Distributed Dr. 60,000 20,000 20,000 1,00,000
Interest on Capital to be Provided
Cr. 10,000 4,000 3,000 17,000
Salary to be provided Cr. 18,000 18,000
3,000 12,000 15,000
Commission to be provided Cr.
Profit correctly distributed Cr. 30,000 10,000 10,000 50,000
Balance to be adjusted 1,000Cr. 6,000Dr. 5,000Cr. NIL
 Ques 72

A, B and C are partners in a firm. Net profit of the firm for the
year ended 31st March, 2019 is 30,000, which has been duly
distributed among the partners, in their agreed ratio of 3 : 1 :
1. It is noticed on 10th April, 2019 that the undermentioned
transactions were not passed through the books of account of
the firm for the year ended 31st March, 2019.
a Interest on Capital @ 6% per annum, the capital of A, B and C
being 50,000; 40,000 and 30,000 respectively.
b Interest on drawings: A 350; B 250; C 150.
c Partners' Salaries: A 5,000; B 7,500.
d Commission due to A forsomespecialtransaction 3,000.
You are required to pass a Journal entry, which will not affect
Profit and Loss Account of the firm and rectify the position of
partners inter se.
 Journal
Debit Credit
Date Particular L.F. Amount ( ) Amount ( )
2019
March 31 A’s Capital A/c Dr. 2,520
C’s Capital A/c Dr. 2,740
To B’s Capital A/c
5,260
Adjustment made

Particular A B C Total
Interest on Capital @ 6% p.a. 3,000 2,400 1,800 7, 200
Interest on Drawings 350 250 150 750
Salary Commission 5,000 7,500 – 12, 500
3,000 3, 000
Profit 30, 000– 7, 200– 12, 500– 3, 000 + 750 4,830 – 1,610 – 1,610 8, 050
Right Share 15,480 11,260 3,260 30, 000
Wrong Share 18, 000 6, 000 6, 000 30,000
Net Effect 2,520 5,260 2,740
Nil
Dr. Cr. Dr.
 Ques 61
Ram, Shyam and Mohan were partners in a firm sharing profits
and losses in the ratio of 2 : 1 : 2. Their capitals were fixed at
3,00,000, 1,00,000, 2,00,000. For the year ended 31st March,
2019, interest on capital was credited to them @ 9% instead of
10% p.a. The profit for the year before charging interest was
2,50,000.
Show your working notes clearly and pass necessary adjustment
entry.
 Journal
Debit Amount Credit Amount
Date Particulars L.
F.
2019
March 31 Shyam’s Current Dr. A/c 200
Mohan’s Current A/c Dr. 400
To Ram’s Current A/c 600
Interest on Capital adjusted

Particulars
Statement Showing Adjustment
Ram Shyam Mohan Total
Interest on Capital credited at 10% p.a. 30,000 10,000 20,000 60,000

Interest on Capital wrongly credited at 9% p.a. 27, 000 9, 000 18, 000 54, 000

Reversed

Right distribution 3,000 1,000 2,000 6,000

Wrong distribution of Rs 6,000 2: 1: 2 2, 400 1, 200 2, 400 6, 000
Net Effect 600 200 400 NIL
 Q64
Mita and Usha are partners in a firm sharing profits in the ratio of 2 : 3.
Their Capital Accounts as on 1st April, 2015 showed balances of 1,40,000
and 1,20,000 respectively. The drawings of Mita and Usha during the year
2015-16 were 32,000 and 24,000 respectively. Both the amounts were
withdrawn on 1st January 2016. It was subsequently found that the
following items had been omitted while preparing the final accounts for
the year ended 31st March, 2016:
a Interest on Capital @ 6% p.a.
b Interest on Drawings @ 6% p.a.
c Mita was entitled to a commission of 8,000 for the whole year.
Showing your working clearly, pass a rectifying entry in the books of the
firm.
 Journal
Debit Amount Credit
Particular L.F.
Amount
Usha’s Capital A/c Dr. 6,816
To Mita’sCapital A/c 6,816

Adjustmentmade

Particular Mita
Debit Credit
Usha Total
Interest on Capital @ 6% p.a. Particular L.F.
8,400
Amount Amount 7,200 15, 600
Interest on Drawings @ 6% p.a.
Usha’s Capital A/c Dr. To
Mita’sCapital A/c
4806,816
6,816
360 840
Adjustmentmade
Commission 8,000 – 8, 000
Right Share 15,920 6,840 22, 760
Wrong Share 9, 104 13, 656 22,760
Net Effect 6,816 6,816
Nil
Cr. Dr.
Mohan, Vijay and Anil are partners, the balances of their Capital
Accounts being 30,000, 25,000 and 20,000 respectively. In arriving at
these amounts profit for the year ended 31st March, 2019, 24,000 had
already been credited to partners in the proportion in which they
shared profits. Their drawings were 5,000 Mohan, 4,000 Vijay and
3,000 Anil during the year. Subsequently, the following omissions were
noticed and it was decided to rectify the errors:
a Interest on capital @ 10% p.a.
b Interest on drawings: Mohan 250, Vijay 200 and Anil 150.
Make necessary corrections through a Journal entry and show your
workings clearly.
 Journal

Debit Credit
Date Particulars L.
Amount Amount
F.
2019
March 31 Anil’s Capital A/c Dr. 550
To Mohan’s Capital A/c 550
Interestoncapitalandinterestondrawings
wasomitted, nowadjusted

WORKING NOTES:
Calculation of Capital in the beginning
Particulars Mohan Vijay Anil Total
Capital at the end 30,000 25,000 20,000 75,000
Add: Drawings 5,000 4,000 3,000 12,000
Less: Profit 1: 1: 1 8, 000 8, 000 8, 000 24, 000

Capital in the 27,000 21,000 15,000 63,000

beginning
 Statement Showing Adjustment

Mohan Vijay Anil Total

Interest on Capital to be 2,700 2,100 1,500 6,300
credited 250 200 150 600
Less: Interest on Drawings
Right Distribution of Rs 5,700 2,450 1,900 1,350 5,700
Wrong
1: 1: 1 Distribution of Rs 5,700 1, 900 1, 900 1, 900 5, 700
Net Effect 550 Nil 550 NIL
 Q76

Capital Accounts of A and B stood at 4,00,000 and 3,00,000 respectively

after necessary adjustments in respect of the drawings and the net profit for
the year ended 31st March, 2019. It was subsequently noticed that 5% p.a.
interest on capital and also drawings were not taken into account in arriving
at the distributable profit. The drawings of the partners had been: A –
12,000 drawn at the end of each quarter and B – 18,000 drawn at the end of
each half year.

The profit for the year as adjusted amounted to 2,00,000. The partners
share profits in the ratio of 3 : 2. You are required to pass Journal entries
and show adjusted Capital Accounts of the partners.
 Debit Credit Amount
Date Particulars L.
Amount
F.
A’s Capital A/c Dr. 1,210
To B’s Capital A/c 1,210
AmountofinterestonCapitalandinterestondrawingsad
justed

Working Notes:
WN 1 Calculation of Capital as on April 01, 2018 OpeningCapital

Particulars Journal A B Total

Capital as on March 31,
2019 Closing 4,00,000 3,00,000 7,00,000
Add: Drawings 48,000 36,000 84,000
Less: Profit 3: 2 1, 20, 000 80, 000 2, 00, 000
Capital as on April 01,
2018 Opening 3,28,000 2,56,000 5,84,000
 Calculation Of Interest On Drawings

Table showing Adjustments

Particulars A B Total
Interest on Capital 16,400 12,800 29,200
tobecredited
Less: Interest on Drawings 900 450 1, 350
15,500 12,350 27,850
Right distribution of Rs
27,850 16, 710 11,140 27, 850
Less: Wrong Distribution
of Rs27,850 3: 2
Net Effect 1, 210 1,210 NIL
SOL 55

Profit distributed Net profit 155,500

to Partners Interest on Drawings
Kabir- K-60,000x5/100x6/12=1500
1,60,000x5/20 40,000 Z-Rs 1500
Z 32,000 P-Rs 1500 4,500
P 88,000

• Calcuation of Interest on Capital

Kabir’s-Rs 26,000+Zoravar-Rs 16,000+Parul’s-Rs 10,000=Rs 52,000
• Calculation Of Salary
Kabir’s-Rs 24,000+Zoravar-Rs 24,000=Rs 48,000
Parul’s Commission –Rs 1,00,000
Total amount due to be paid by the firm-
52,000+48,000+1,00,000=Rs 2,00,000.
It is more than the available profit.so, Interest on capital,salary and
commission are the appropriations .
Thus,we will be seeing amount due to each partner
Kabir-Rs 26,000+Rs 24,000=Rs 50,000
Zoravar-Rs 16,000+Rs 24,000=Rs 40,000
Parul-Rs 10,000+Rs 1,00,000=Rs 1,10,000
Ratio comes out to be 5:4:11
 Q62 WHEN CAPITAL IS FIXED
Simrat Bir Particulars Simrat Bir
Particulars
Bank(Drawings) 2,40,000 60,000 Bal b/d(Bal Fig) 6,00,000 3,60,000
Bal C/d 4,80,000 6,00,000 Bank(Add.Capital) 1,20,000 3,00,000

7,20,000 6,60,000 7,20,000 6,60,000

Calculation of Interest on Capital

SIMRAT
1 April’19 6,00,000 X 6/100 X 1/12 = 3,000
1 May’19 7,20,000 X 6/100 X5/12 = 18,000
1 Oct’19 4,80,000 X 6/100 X6/12 = 14,400
35,400
BIR
1 April’19 3,60,000 X 6/100 X 1/12 = 1800
1 May’19 3,00,000 X 6/100 X 5/12 = 7500
1 Oct’19 6,00,000 X 6/100 x 6/12 =18,000
27,300
 WHEN CAPITAL IS FLUCTUATING

PARTICULARS SIMRAT BIR PARTICULARS SIMRAT BIR

Drawings against Profit 1,20,000 60,000 Bal b/d (Bal Fig) 5,76,000 3,24,000
Drawings against Capital 2,40,000 60,000 BankA/C(add Cap) 1,20,000 3,00,000
Bal C/d 4,80,000 6,00,000 Profit 1,44,000 96,000

Calculation of Interest on Capital

SIMRAT
1 April’19 5,76,000 X 6/100 X 1/12 = 2,880
1 May’19 6,96,000 X 6/100 X 5/12 = 17,400
1 Oct’19 4,56,000 X 6/100 X 6/12 = 13,680
33,960
BIR
1 April’19 3,24,000 X 6/100 X 1/12 =1620
1 May’19 2,64,000 X 6/100 X 5/12 = 6600
1 Oct’19 5,64,000 X 6/100 X6/12 =16,920
25,140
 Q77
The firm of Harry, Porter and Ali, who have been sharing profits in the
ratio of 2 : 2 : 1, have existed for same years. Ali wants that he should get
equal share in the profits with Harry and Porter and he further wishes that
the change in the profit-sharing ratio should come into effect
retrospectively were for the three years. Harry and Porter have agreement
on this account. The profits for the last three years were:
Show adjustment of profits by means of a single adjustment Journal
entry.
Year 2015-16 2016-17 2017-18
Profit 2,20,000 2,40,000 2,90,000

Harry’s Capital A/c Dr 50,000

Porter's Capital A/c Dr. Date Journal Adjustingentry
Debit
L.F Amount
Credit
Amount
1,00,000
Particular

To Ali's Capital A/c Harry's Capital A/c Dr. 50,000

Profitadjustedduetochangeinprofitsharingratio
 Old Ratio 2: 2: 1 Harry Porter Ali Total
Year
2015 – 16 88, 000 88, 000 44, 000 2, 20, 000
2016 – 17 96, 000 96, 000 48, 000 2, 40, 000
2017 – 18 1, 16, 000 1, 16, 000 58, 000 2, 90, 000
Total Profit of 3 years in old ratio 3, 00, 000 3, 00, 000 1, 50, 000 7, 50, 000
Distribution of 3 years profit in new 2,50,000 2,50,000 2,50,000 7,50,000
Ratio 1: 1: 1
50, 000 50, 000 1,00,000 NIL
Adjusted Profit
 Ques 74
On 31st March, 2014, the balances in the Capital Accounts of Saroj,
Mahinder and Umar after making adjustments for profits and drawings,
etc., were 80,000, 60,000, 40,000 respectively. Subsequently, it was
discovered that the interest on capital and drawings has been omitted.
a The profit for the year ended 31st March, 2014 was 80,000.
b During the year Saroj and Mahinder each withdrew a sum of 24,000 in
equal instalments in the end of each month and Umar withdrew 36,000.
c The interest on drawings was to be charged @ 5% p.a. and interest on
capital was to be allowed @ 10% p.a.
d The profit-sharing ratio among partners was 4 : 3 : 1.
Showing your workings clearly, pass the necessary rectifying entry.
 Debit Amount Credit Amount
Particular L.F
.
Saroj’s Capital A/c Dr. 2,350
Mahinder’s Capital A/c Dr. 1,300
To Umar’s Capital A/c 3,650
Adjustmentmade

Particular Saroj Mahinder Umar

Closing Capitals 80,000 60,000 40,000
Add: Drawings 24,000 24,000 36,000
Less: Profit Share 40,000 30,000 10,000
Opening Capital 64,000 54,000 66,000

Particular Saroj Mahind Umar Total

er
Interest on Capital @ 10% p.a.
Interest on Drawings@ 5% p.a. 6,400 5,400 6,600 18, 400
550 550 900 2,000
Profit 80, 000– 18, 400 + 2, 000
31,800 23,850 7,950 63, 600
Right Share 37,650 28,700 13,650 80, 000
Wrong Share 40, 000 30, 000 10, 000 80,000
Net Effect 2,350 1,300 3,650
Dr. Dr. Cr. Nil