Accounting for Partnership: Basic Concepts

Soumya and Bimal are partners in a firm Sharing profits and losses in the ratio of 3:2. The balance in their capital and current accounts as on April 01, 2019 were as under: Capital Accounts: Soumya (Rs.) 3,00,000, Bimal (Rs.) 2,00,000; Current Accounts (Cr.): Soumya (Rs.) 1,00,000, Bimal (Rs.) 80,000. The partnership deed provides that Soumya is to be paid salary @ Rs. 500 per month where as Bimal is to get a commission of Rs. 40,000 for the year. Interest on capital is to be credited at 6% p.a. The drawings of Soumya and Bimal for the year were Rs. 30,000 and Rs. 10,000 respectively. The net profit of the firm before making these adjustments was Rs. 2,49,000. Interest on Soumya’s drawings was Rs. 750 and Bimal’s drawings, Rs. 250. Prepare Profit and Loss Appropriation Account and Partner’s Capital and Current Accounts.

Raju and Jai commenced business in partnership on April 1, 2019. No partnership agreement was made whether oral or written. They contributed Rs. 4,00,000 and Rs. 1,00,000 respectively as capitals. In addition, Raju advanced Rs. 2,00,000 as loan to the firm on October 1, 2019. Raju had met with an accident on July 1, 2017 and could not attend the business up to September 30, 2017. The profit for the year ended March 31, 2020 amounted to Rs. 50,600. Disputes have arisen between them on sharing the profits of the firm. Raju Claims: (i) He should be given interest at 10% p.a. on capital and so also on loan. (ii) Profit should be distributed in the proportion of capitals. Jai Claims: (i) Net profit should be shared equally. (ii) He should be allowed remuneration of Rs. 1,000 p.a. during the period of Raju’s illness. (iii) Interest on capital and loan should be given @ 6% p.a. State the correct position on each issue as per the provisions of the Partnership Act. 1932.

Reena and Raman are partners with capitals of Rs. 3,00,000 and Rs. 1,00,000 respectively. The profit for the year ended March 31, 2020 was Rs. 1,80,000, before paying rent for her personal building to be used as godown for firm to Reena payable at Rs. 5000 per month. Interest on capital is to be allowed at 6% p.a. Raman was entitled to a salary of Rs. 30,000 p.a. The drawings of partners were Rs. 30,000 and 20,000. The interest on drawings to be charged to Reena was Rs. 1,000 and to Raman, Rs. 500. Assuming that Reena and Raman are equal partners. State their share of profit after necessary appropriations.

Govind is a partner in a firm. He withdrew the following amounts during the year 2019-2020: April 30, 2019: Rs. 6,000; June 30, 2019: Rs. 4,000; Sept. 30, 2019: Rs. 8,000; Dec. 31, 2019: Rs. 3,000; Jan. 31, 2020: Rs. 5,000. The interest on drawings is to be charged @ 6% p.a. The books are closed on March 31, every year. Calculate interest on drawing:

Ram and Syam are partners sharing profits/losses equally. Ram withdrew Rs. 1,000 p.m. regularly on the first day of every month during the year 2015-16 for personal expenses. If interest on drawings is charged @ 5% p.a. Calculate interest on the drawings of Ram.

Verma and Kaul are partners in a firm. The partnership agreement provides that interest on drawings should be charged @ 6% p.a. Verma withdraws Rs. 2,000 per month starting from April 01, 2019 to March 31, 2020. Kaul withdrew Rs. 3,000 per quarter, starting from April 01, 2019. Calculate interest on partner’s drawings.

Kavita and Lalit are partners sharing profits in the ratio of 2:1. They decide to admit Mohan with share in profits with a guaranteed amount of Rs. 25,000. Both Kavita and Lalita undertake to meet the liability arising out of Guaranteed amount to Mohan in their respective profit sharing ratio. The profit sharing ratio between Kavita and Lalit does not change. The firm earned profits of Rs. 76,000 for the year 2006–07. Show the distribution of profit amongst the partners.

Gupta and Sarin are partners in a firm sharing profits in the ratio of 3:2. Their fixed capitals are: Gupta 2,00,000, and Sarin 3,00,000. After the accounts for the year are prepared it is discovered that interest on capital @10% p.a. as provided in the partnership agreement, has not been credited in the capital accounts of partners before distribution of profits. Record adjustment entry to rectify the error.

Krishna, Sandeep and Karim are partners sharing profits in the ratio of 3:2:1. Their fixed capitals are: Krishan Rs. 1,20,000, Sandeep 90,000 and Karim 60,000. For the year 2014-15, interest was credited to them @ 6% p.a. instead of 5% p.a. Record adjustment entries through P&L adjustments account.

Leela, Meera and Neha are partners and have omitted interest on capital @9% p.a. for three years ended March 31, 2013. Their fixed capitals on which interest was to be allowed throughout were: Leela Rs. 80,000, Meera Rs. 60,000 and Neha Rs. 1,00,000. Their profit sharing ratio during the last three years were: 2015-16 (2:2:2), 2014-15 (4:5:1), 2013-14 (1:2:2). Record adjustment entry.

Define Partnership Deed.

Why is it considered desirable to make the partnership agreement in writing?

Why is Profit and Loss Appropriation Account prepared?

Give two circumstances under which the fixed capitals of partners may change.

If a fixed amount is withdrawn on the first day of every quarter, for what period the interest on total amount withdrawn will be calculated?

What is meant by partnership? Explain its chief characteristics? Explain.

Discuss the main provisions of the Indian Partnership Act 1932 that are relevant to partnership accounts if there is no partnership deed.

Explain why it is considered better to make a partnership agreement in writing.

Illustrate how interest on drawings will be calculated under various situations.

How will you deal with a change in profit sharing ratio among existing partners? Take imaginary figures to illustrate your answer.