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Module 02 Assessment of Partnership Firms

Illustration 01
Compute the income of the firm from business in the following cases: conditions u/s 184 and 40(b)
fulfilled:
a) Book Loss ₹ 50,000.
Remuneration paid to working partners ₹ 1,60,000
b) Book Loss ₹ 80,000
Remuneration to working partners ₹ 1,75,000
c) Book Profit ₹ 1,80,000
Remuneration to working partners ₹ 1,50,000
d) Book Profit ₹ 6,00,000
Remuneration to working partners ₹ 4,10,000
Illustration 02
Compute the income of the firm from business in the following cases: Conditions u/s 184 and 40 (b)
fulfilled:
a) Book Profit ₹ 5,90,000. Remuneration paid to working partners ₹ 1,70,000.
b) Book Loss ₹ 34,000. Remuneration paid to working partners ₹ 1,45,000.
c) Book Profit ₹ 2,72,000. Remuneration paid to working partners ₹ 1,60,000.
d) Book Loss ₹ 57,000. Remuneration paid to working partners ₹ 1,88,000.
Illustration 03
A, B and C are partners in a firm with equal shares. The P and L A/c of the firm for the year ended 31-3-2023 is
as under:

Particulars Amount ₹ Particulars Amount ₹

Interest on capital 18% Gross Profit 9,000

A 8,000 Loss: A 1,25,000
B 7,000 B 1,25,000
C 9,000 C 1,25,000
Salary: A 1,20,000 24,000
B 1,20,000
C 1,20,000 3,60,000

3,84,000 3,84,000

Compute book profit and the total income of the firm for the A.Y. 2023-24. The firm fulfills the conditions of
Sec. 184.
Illustration 04
A, B and C are working partners in a firm sharing profits and losses in the ratio of 3:2:1 From the
following particulars compute the total income of the firm tax payable by the firm and taxable income of the
partners from the firm for the A.Y. 2023-24.
Profit and Loss A/c

Particulars Amount ₹ Particulars Amount ₹

To Sundry expenses 1,69,500 By Gross Profit 2,00,000

To Salaries By Interest on
A 10,000 securities(Gross) 18,000
B 15,000 By Income from house
To Commission to C 24,000 property 20,000
To Interest on capital @ 20% By Dividends (Gross) 10,000

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A 6,000 By Capital gain

B 8,000 Short-Term 8,000
C 1,000 Long-Term 10,000
To Net profit 32,500

2,66,000 2,66,000
Additional Information:
1) Sundry expenses include:.
a) Outstanding GST ₹800
b) Expenses incurred for obtaining the loan ₹ 2,000
c) Donations to National Children's Fund ₹ 5,000
d) Payment of ₹ 25,000 in cash
e) Customs Penalty paid ₹ 2,500
f) Interest on loan paid to the wife of partner 'A' ₹ 4,000
g) Depreciation on car at 20% ₹ 25,000 and depreciation on computers at 25% ₹ 10,000.
The car was used by Mr. A for personal purposes to the extent of 40%
h) LIC premium on the lives of partners ₹ 10,000
2) 'A' paid 3,000 as interest on money borrowed for investment in the firm.
3) Under Income Tax rules depreciation allowable on car and computers is 15% and 40% respectively.
Illustration 05
X, Y, Z are equal partners in a firm with X being a non-working partner. The P&L A/c for the year
ended 31-3-2023 is as under:
Particulars Amount ₹ Particulars Amount ₹

Rent 20,000 Gross Profit 4,05,000

Office expenses 25,000 Discount 10,000
Salaries 1,00,000 Bad debts recovered 2,000
Advertisement 15,000 Bank interest 3,000
GST 30,000
Charity and donations 5,000
Bad debts reserve 10,000
Bad debts 15,000
Sundry expenses 20,000
Depreciation allowed by
Department 25,000
Interest on capital:
X 50,000
Y 25,000
Z 25,000 1,00,000
Commission:
X 15,000
Y 10,000
Z 5,000 30,000
Net profit 25,000

4,20,000 4,20,000

i) Salaries include partners salaries Y - ₹15,000 and Z - ₹10,000

ii) Bad debts admissible by the department ₹ 12,500
iii) Furniture purchased by X for personal use₹ 10,000 has been debited to sundry expenses account.
iv) Donation includes, donation to a local school ₹ 3,500, to a club ₹ 1,000 and to a trade association ₹ 500.
v) Capital account of the partners at the beginning of the previous year as on 1-4-2022 were as follows:
X ₹ 2,00,000
Y ₹ 1,00,000
Z ₹ 1,00,000 ₹ 4,00,000

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vi) Office expenses include bonus to partners:

X ₹1,000
Y ₹2,500
Z ₹1,500 ₹ 5,000
Compute the profit from business and total income of the firm for the Assessment Year 2023- 24 and also
calculate the share of each partner in the firm. The firm fulfils the conditions of Sec. 184.
Illustration 06
M/s Singh and Jain is a firm of Chartered Accountants in which Singh, Jain and Narain are working
partners, sharing profits and losses in the ratio of 2:2:1. The firm showed a net surplus of ₹ 57,000 for the year
ended 31st March 2023. Following items are found debited in the Income and Expenditure Account of the firm:
i) Salary to Jain ₹ 7,000
Salary to narain ₹ 9,800
ii) Commission to Singh ₹ 6,000
Commission to Narain ₹ 4,800
iii Interest on capital @ 20%
Singh ₹ 6,000
Jain ₹ 4,000
iv) Customs penalty paid ₹ 3,000
v) Rent of ₹ 3,600 paid to Jain in respect of the house let out by him to the firm.
Compute the Total Income of the firm for the A. Y. 2023-24. The firm fulfills the conditions of Section 184.
Illustration 07
Tom, Dick and Harry are equal partners in a firm with Tom as a non-working partner. The profit and
loss account for the year ended March 31, 2023 is as follows:

Particulars Amount ₹ Particulars Amount ₹

Office expenses 30,000 Gross Profit 10,00,000

Rent 60,000 Dividend from Indian Cos Rent 30,000
Salaries 2,00,000 from House Property Ground rent 26,000
Donation 20,000 received Interest on Govt. Securities 45,000
Advertisement 30,000 4,000
Reserve Bad Debts 20,000
Sundry Expenses 60,000
Bad debts 20,000
Depreciation reserve Interest on 40,000
capital:
Tom 1,00,000
Dick 60,000
Harry 40,000 2,00,000
Commission:
Tom 20,000
Dick 15,000
Harry 5,000 40,000
Bonus:
Tom 15,000
Dick 15,000 30,000

Net profit 3,55,000

11,05,000 11,05,000
Additional Information:
1) Salary includes salary of Dick ₹ 30,000 and Harry ₹ 20,000.
2) Depreciation allowable as per Income Tax rules is ₹ 30,000
3) Donation includes ₹ 10,000 to NDF and the balance to a recognized school.

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3rd B.com
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4) Capital account of partners stood at Tom ₹ 4,00,000, Dick ₹ 2,40,000 and Harry ₹ 1,60,000 on 1st April
2022.
5) Sundry expenses include a payment made in cash ₹ 25,000 and ₹ 10,000 to a recognized political party.

Illustration 08
A, B and C are partners in a firm sharing profits and losses in proportion of 2:2:1. The firm's profit and
loss account for the year ended 31st March 2023 showed a net loss of ₹ 80,000 after charging the following
items:
A B C
Interest on capital at 20% 2,000 4,000 6,000
Salary 6,000 - -
Bonus 4,000 4,000 4,000
The net loss was arrived at after considering 3,800 being the dividend received and 2,000 as interest on
drawings by C.
Compute the total income of the firm and the income of partners from the firm taxable under Section 28 (A and
B are working partners).

Illustration 09.
A, B and C are partners in a firm, with C being a non-working partner. The profit and loss account of the
firm is as under:

Particulars Amount ₹ Particulars Amount ₹

Office rent 24,000 Gross Profit 4,00,000

Office expenses 30,000 Discount 12,000
Salaries 10,00,000 Bad debts recovered 18,000
Advertisement 15,000 Commission 6,000
GST 20,000 Long term Capital Gains 4,000
Reserve for GST 6,000 Interest on drawings 10,000
Donation to R G Foundation 12,000
Sundry expenses 25,000
Bad debts reserve 11,000
Depreciation 22,000
Interest on capital at 25%:
A 50,000
B 30,000
C 20,000
Commission:
A 18,000
B 12,000
C 10,000
Net profit 45,000

4,50,000 4,50,000
Additional Information:
a) Salaries include partner's salaries: A ₹ 25,000, B ₹ 20,000.
b) Actual depreciation amount to ₹ 20,000
c) Bad debts recovered include ₹ 8,000 being disallowed earlier.
d) Furniture purchased by A for personal use is included in sundry expenses ₹ 2,500
e) Offices expenses include bonus to partners: A ₹ 5,000, B ₹ 3,000, C ₹ 2,000.
Compute total income of the firm, calculate the share of each partner from firm and taxable income of the
partners from the firm.
Illustration 10
A, B and C are partners in a firm with equal shares.
The profit and loss account of the firm for the year ended 31st March, 2023

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3rd B.com
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Particulars Amount ₹ Particulars Amount ₹

Interest on Capital @18% Gross Profit b / d 27,000

A 24,000 Net loss:
B 21,000 A 3,75,000
C 27,000 72,000 B 3,75,000
Salary: C 3,75,000 11,25,000
A 3,60,000
B 3,60,000
C 3,60,000 10,80,000

11,52,000 11,52,000
Compute book profit and the total income of the firm for the AY 2023-24, the firm fulfills the conditions of Sec.
184.
Illustration 11.
Nithin, Keerthan and Omkar are partners in a firm Nithin is a non-working partner. They shared profits
and losses equally.
Their P&L for the year is given below :
Particulars Amount ₹ Particulars Amount ₹

To Office Expenses 15,000 By Gross Profit 5,00,000

To Rent 30,000 By Dividend from Indian Company 15,000
To Salaries 1,00,000 By Rent from House property 13,000
To Donations 10,000 By Interest on Govt. securities 2,000
To Advertisements 15,000
To RBD 10,000
To Sundry Expenses 30,000
To Bad debts 10,000
To Depreciation reserve 20,000
To Interest on Capital:
Nithin 50,000
Keerthan 30,000
Omkar 20,000 1,00,000
To Commission:
Nithin 10,000
Keerthan 7,500
Omkar 2,500 20,000
To Bonus:
Nithin 7,500
Keerthan 7,500 15,000
To Net Profit 1,55,000

5,30,000 5,30,000

Additional Information:
a) Salaries include partner's salaries: Keerthan ₹.15,000 and Omkar ₹10,000.
b) Depreciation allowable as per Income Tax Rules ₹ 7,500.
c) Donations includes ₹ 5,000 to National Defence Fund and the Balance to a local recognized school.
d) Capital account of partners stood at Nithin ₹ 2,00,000, Keerthan ₹ 1,20,000 and Omkar₹ 80,000 as on
1st April, 2021.
Compute Book Profit, total income of the firm and the share of income of the partner from the firm.

Illustration 12

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The following is the Profit & Loss Account of Hegde and Shanubaugh Associates (a professional firm
which fulfils the conditions of sec. 184) with two equal partners, Akash and Vikas for the year ending 31st
March, 2023:
Profit and Loss Account for the year ended 31st March, 2023
Particulars Amount ₹ Particulars Amount ₹

To Salary 39,000 By Gross Profit 1,59,000

To General Charges 21,000 By LTCG 30,000

To Income tax Penalty 2,000 By Net Loss 30,000

To Income tax 12,000

To Bad Debts Reserve 1,000

To Depreciation on Car @ 15% 20,000

To Int. on Capital of 2.1,00,000

each: (Rate of Interest 15%)

Akash 12,000

Vikas 12,000 24000

To Salary & Bonus:

Akash 46,000

Vikas 40,000 86,000

To Donation to a recognised School 15,000

2,19,000 2,19,000
Additional information:
1) Vikas paid ₹ 2,000 as interest on money borrowed for investment as capital in the firm.
2) Car was purchased on 6th October, 2021.
Compute the firm's Book Profit and Total Income.
Illustration 13
Disha, Roopa and Dreema are partners in a firm (with Roopa and Dreema working partners) and share
profit and losses in the ratio of 1:2:2. Their P&L for the year is given below:
Particulars Amount ₹ Particulars Amount

To Salaries 2,00,000 By Gross Profit b/d 5,20,000

To Rent 72,000 By Bank Interest 5,000

To Advertisement 5,000 By Dividend 8,000

To Bad Debts 7,000 By Bad debts recovered 6,000

To GST 8,000 By Interest on drawings by Disha 4,000

To Reserve for doubtful debtors 8,000 By Rent from letout property 20,000

To Income tax 10,000 By Long-term Capital Gains 29,500

To Sundry expenses 30,000

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To Depreciation 25,000

To Municipal tax of letout property 4,000

To Interest on capital @ 16% p.a.

Disha 6,000

Roopa 9,000

Dreema 18,000

To Outstanding GST 7,000

To Donations 30,000

To Trading expenses 28,000

To Commission to Roopa 10,000

To Net Profit 1,15,500

5,92,500 5,92,500
1) Salary include Disha's salary ₹ 20,000, Roopa ₹ 22,000 and Dreema ₹ 22,000.
2) Bad debts found to be excess by ₹ 3,000.
3) Furniture purchased by Disha for personal use ₹ 8,000, has been debited to Sundry expenses A/c.
4) Trading expenses include Bonus to Roopa ₹ 5,000, to Dreema ₹ 5,500.
5) Out of bad debts recovered ₹ 4,000 was allowed earlier.
6) Out of O/S GST ₹ 7,000, ₹ 4,000 was paid in Aug. 2022 (before filing the returns).
Compute the total income of the firm, its tax liability and share of income of the partners' exempt u/s 10(2A).
Illustration 14
Rahu and Ketu are equal working partners in a firm which showed a net loss of Rs 50,000 for the year
after providing for the following:
1) Interest on capital:
Rahu @ the rate of 20% 6,000
Ketu @ the rate of 20% 4,000
2) Commission to Ketu 3,000
3) Salary to ketu 6,000
4) Rent paid to Ketu 10,000
The net loss was arrived at after considering ₹ 5,000 being dividend received and 2,000 as interest on drawings
by Rahu. Compute the total income of the firm.
Illustration 15.
X Y and Z are partners in a partnership firm (with Y and Z are working partner) and share profits and
losses in the ratio of 1:2:2. Their P&L for the year is given below:
Particulars Amount ₹ Particulars Amount ₹

To salary By Gross profit B/d 7,00,000

x-30,000 By bank interest 8,000

y-60,000 By dividend 7,000

z-60,000 1,50,000 By Interest on drawings by x 5,000

To rent 70,000 By income from house property 30,000

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To advertisement 10,000 By LTCG 20,000

To bad debts 8,000

To GST 18,000

To RBD 7,000

To income tax 11,000

To sundry expenses 25,000

To depreciation 30,000

To interest on capital @18% р.а.

x-4,500

y-9,000

z-9,000 22,500

To outstanding customs duty 6,000

To donations 17,000

To commission to Y 18,000

To Net profit 3,77,500

7,70,000 7,70,000
Additional information:

a. Bad debts found to be excess by ₹3,000

b. Sundry expenses include bonus to X-₹5,000 and Y-₹6,000
c. Out of outstanding customs duty ₹6,000, ₹5,000 was paid before filing the returns
Compute the total income of the firm and its tax liability

Prepared By: Reshmith.K

3rd B.com