~blACCOUNTING FOR PARTNERSHIP

It ~(Distribution of Profits) A and B are partners sharing profits in the ratio ~f 3:?with the capitals of Rs. 50,000 and Rs.30,000 respectively. Interest on .capltal IS

agreed @ 6% p.a. B is to be allowed an annual salary of Rs: 2,500. Dunng 19~5,the profits of the year prior to calculation of interest on capital but ~fter chargmgB's salary amounted to Rs. 12,500. A provision of 5% of the profits IS to be .~dein respect of manager's commission.Prepare Profit and Loss AppropnatlOn

Account.

2. (Interest on Partner's loan) A and B are partners in a firm sharing profits in the

ratio of 3 -:'2. They had advanced to the firm a sum of Rs. 40,000 as a loan in their

profit sharing ratio.",on July l " 1998. The partnership deed is silent on the question

of interest on loan from partners. Compute the interest payable by the firm to the

partners, assuming the firm closes its books on December 31 "......., .

(Interest ~n drawings) A and B art! partners with monthly drawings of Rs. 1,000each. Interest on drawings is to be charged @ 10% p.a. Calculate Interest on A'sdrawings assuming drawings are made:(a) In the begining of every month.(b) In the middle of every month. ' -4:':

(c) In the end of every month..:

it. (Co;"mission to the Man1i}e/~ X and Yare partners with a capital contribution ofRs 80,000 and Rs 60,000 respectively. Their partnership deed discloses thefollowing:

(i) Profit sharing ratio 3 : 2(ii) Interest on' c,apital is agreed at 5% p.a.(ill) Y is allowed a salary of Rs 6,000 p.a.which has not been drawn.Profits during the year 2001 prior to calculation of interest on Capital but aftercharging Y's salary amounted to Rs 24,000. A provision of 5% of this amount isto be made in respect of commission to the manager. Prepa re PI' .r,1 imd I IIW'

Appropriation Account.

1:;. (Interest on Capitals) A & B are partners sharing profit or loss in the ratio of, 3:2 haying ca§ital balances of Rs. 50,000 & Rs. 40,000 on 1.4.2003. On 1st !~!y?-

2003 A introduced Rs. 10,000 as his additional capital whereas B introduced onlyRs. 1,000. If the interest on capital is allowed to Pfartners @ 10% p.a, calcul~tf-'the interest on capital if the financial year closes on 31 st of March every year. 7

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b, r (Omission of interest on capital and drawings) Mohan, Vijay and Anil are equalpartners, the balances on their capital accounts being Rs. 30,000, Rs. 25,000 andRs. 20,000 respectively. In arriving at these figures, the profits for the year endedDecember 31, 1992 are Rs. 24,000 had already been credited to partners in theproportion in which they shared profits. Their drawings were: Mohan Rs. 5,000,Vijay Rs. 4,000 and Anil Rs. 3,000 in 1992. Subsequently, the following omissionswere noticed and it was decided to bring them into account.(i) Interest on capital at 10% per annum.(ii) Interest on drawings: Mohan Rs. 250, Vijay Rs. 200 and Apil R: 1 ;0.Make the necessary corrections through a journal entry and S~I(I\V vo... ',~orll "g,"I ~_,..I"

'"7. (Wrong interest on capital) Ram, Shyam and Mohan are -partners in a firm sharingprofits and losses in the ratio of 2: 1:2. Their fixed capitals were Rs. 3,00,000,Rs. 1,00,000 and 1\s. 2,00,000 respectively. Interest on capital for the year 1996was credited to them @ 9% p.a. instead of 10% p.a. Showing your working notesclearly, pass the necessary adjustment journal entry.

(Wrong Interest on Capitals) A, Band C were partners in a firm sharing prolusand losses in the ratio of 4 : 3 : 3. Their capitals were fixed at Rs.l,OO,OOO,Rs.2,OO,000 and Rs.3,00,000 respectively. For the year 1996, Interest on Capital wascredited to them @ 10% instead of 9% p.a. Showing your working notes clearly.Pass the necessary adjustment entry. I

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'i'Change in profit sharing ratio-Retrospective effect) Jagdish, Ashish and Deepakare partners sharing profits in the ratio of 3 : 2 : 1. The firm has 6een in existencefor many years. Now the partners decide to share profits in the ratio of2 : 2 : l. They have also decided that the change shall be carried out vithretrospective effect from 1995. The profits and losses during the last few yearshave been 1994: Rs. 16,000; 1995: Rs. 12,000; 1996: Rs. 14,000; 1997: Rs. 19,000and 1998: (loss) Rs. 15,000. Show the adjustment of the profit for the last 4 yearsby means of a single adjustment entry. [

10' (Omission of interest on drawings) A, Band C are partners with a profit sharingratio of 2: 1: 1 After the accounts for the year have been closed, it was noticedthat Interest on Drawings was not recorded. Interest on Drawings to partnersamounted to A Rs.500; B Rs.360 and C Rs.200. Give the adjusting entry.

(Error of Omission) The partners of a firm distributed the profits for the yearended 31 SI March 2003, Rs. 90,000 in the ratio of 3 : 2 : 1 without providing forthe following adjustments:

(i) A & B were entitled to a salary of Rs. 1,500 each per annum.(ii) B was entitled to a commission of Rs. 4,500.

(iii) B & C had guaranteed a minimum profit of Rs. 35,000 p.a. to A.(iv) Profits were to be shared in the ratio of 3 : 3 : 2.

Pass necessary journal entry for the above adjustments

~ (Manager to be treated as a partner) Ramesh and Rakesh are partners with profitsharing ratio of 3:2. They decided to admit Suresh, their manager, as a partner

1with effect from 1-4-1998 giving "4 th share of profit. Suresh as a manager l' m

earning a salary of Rs. 54,000 p.a. and a commission of 10% of the net prufitafter charging such salary and commission. It was decided that any excessamount, which Suresh will be entitled to received as a partner over amount whichwould have been due to him if he continued to be the manager, would have tobe borne by Ramesh personally. Show the Profit and LossAppropriation Account

. for the year ended 31.3.1999 in each of the following cases.

(i) Profit is Rs. 4,50,000

(ii) Profit amounted to Rs. 4,40,000 after charging salary.

(ill) Profit amounted to Rs. 4,30,000 after Suresh's remuneration as manager.

LT'T RECONSTITUTION OF PARTNERSH~

/. (Calculation of Goodwill-Average Profits Method) The profits and losses for lastfive years were :

1't year - Rs 4,000 (including an abnormal gain of Rs 1,000)2nd year - Rs 8,000 (excluding Rs 2,000 as insurance premium)3rd year - Rs 2,000 (after chargi ng an abnormal loss of Rs 1,000)4th year - Rs 3,000sth year - Rs 1,000 (Loss)Calculate the amount of Goodwill on the basis of 2 years' purchase of last 5 yearsprofits and losses.

'2. • '(Calculation of Goodwill-Super Profits Method) A partnership firm earned netprofits during the last four years as under:Year Profits (Rs.)I 30,000II 40,000III 25,000IV 10,000

The capital investment in the firm throughout the above mentioned period hasbeen Rs.I,OO,OOO. Having regard to the risk involved, 15% is considered to be afair return on the capital invested.

Cal_culate the value of Goodwill on the basis of 3 years' purchase of super profits.

(Calculation of Goodwill-Capitalization Method) A firm earns a profit ofRs.40,000 per year. In the same business 10% return is generally expected Thetotal assets of the fi R 3 00 000 .R 40000' rm are s., , . The value of outsiders' liabilities is. s. , . Find the value of Goodwill.

(Change in Profits Sharing Ratio) A, Band C were partners sharing profits anulosses in the ratio of 3:2: 1 . On 1.1.2002, they decided that in future they willshare profits in the ratio of 2:2:3. Calculate sacrificing ratio and gaining. ratio.

5,

(Tr~atment of Goodwill) P, Q and R are partners sharing profits equally. Theydecided that In future R will get 1/5th share in profits and remaining profit will beshared by P and Q equally. On the day of change, firm's Goodwill is valued at

. Rs. 30,000. Give journal entries arising on account of change in profit-sharing ratio.

(. (Treatment of Goodwill) X, Y and Z were partners sharing profits and losses inthe ratio of 4:3 :2. Goodwill does not appear in the books but it is worthRs. 36,000. The partners decide to share future profits in equal proportions. Give ajournal entry to record the above change. Also indicate the individual partners'gain or loss due to change in the ratio. Show your workings clearly. {Delhi, 1985}

7. f (Calculation of new ratio) A, Band C are partners sharing profits and losses in2

the ratio of 3:2:1. D joins the firm and gets 10th share in the ratio of 1:1 from Aand B. Calculate new ratio in the above case.

(Calculation of new and sacrificing ratio) Ram and Shyam are partners sharing

profits & losses in the ratio of 5 : 3. Ram surrenders ithof his share and Shyam

1surrenders - rd of his share in favour of Sita , a new partner. Calculate new profit3 .sharing ratio and sacrificing ratio.

(Treatment of Goodwill) A and B are partners sharing profits in the ratio of 2: 1.

They admit C as a partner for .!. th share. His share of goodwill is Rs. 15,000.

Give journal entries in the following cases:(a) If the amount of goodwill is paid privately.(b) If the goodwill is received in cash and retained in the business.(c) If goodwill is received in cash and withdrawn by old partners.

(d) If he is unable to bring his share of goodwill in cash.

Jo~(~~~~e~t % Goodwill) X and Y a~e partners in a firm sharing profits in the ratio~atio 'wi'lI ~e 4 a.r~h.li 2~0:. the~ admRIttedZ as a new partner. The new profit sharing

. . " roug t m Rs, 1,00,000 In cash as his share of ca ital bc~uld not bring any amount for goodwill in cash. The firm's goodwill on Z'sP d .utsron was valued at R I 80 000 . a. mis-the books of the fir~\t 'Rs~ 2,40~~~~e time of Z's admission, goodwill existed in

~..Pass ~ecessary journal entries in the books of the firm on Z's admission. Show yourworkings clearly. I - --

12..·(Treatment of Goodwill) Mukesh and Manish are partners sharing profits in the

ratio of 3:2. They admit Ruchika into the firm for 2th profit, which she takes2 I 88th from Mukesh and 8th from Manish and brings Rs. 1,800 as a premium, out

of her share of Rs 2,000. Goodwill account does not appear in' the books ofMukesh and Manish. Give journal entries and the new ratio of Mukesh, Manishand Ruchika.

(Treatment of Good "/11 A d B6 000 . WI v an are partners with capital of Rs. 8 000 and Rs

, respectively. They admit C as partner with 1I41h h . h ' .firm C b . R' s are In t e profits of thegoodwill. nngs s. 10,000 as hIS share of capital. Give journal entries to record

1~. (Preparation of balance sheet of reconstituted firm) A and B are partnerssharing profits in the ratio 3:4. Their Balance Sheet as at 31.12.2004 was asunder.

BALANCE SHEETas at 31.12.2004

Liabilities Rs. Assets Rs.

Capital Accounts: Fixed Assets ~4.0n~'

A Rs.30,000 Stock 7,511:

B Rs. 15.000 45,000 Debtors Rt" It,OOO

Creditors 4,500 Less: Provision Rs. 200 5,800

Employees' Provident Fund 2,980 Cash 16,440

Workmen's Compensation Fund 1,960 Profit and Loss Alc 700

54,440 54,440

I 'C is admitted for 7th share in future profits. C brings Rs.6,000 as capital and R,s.3,500for goodwill in cash. C acquires his share entirely from B. It was further agreed that:

(i) Employee's Provident Fund is to be increased by Rs.l ,500.(ii) Creditors are to be paid Rs.300 'less.

(iii) All Debtors are good.(iv) Fixed Assets are to be revalued at Rs.21 ,000.(v) Stock included Rs.900 for obsolete items.

Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of thereconstituted firm.

'5. (Preparation of balance sheet of reconstituted firm) Jain and Gupta were partnersin a firm sharing profit and losses in the ratio of 4:3. The following is the BalanceSheet of the firm as on 31st December 1994.

Books of Jain and Gupta

BALANCE SHEETas at 31.12. 1994

Liabilities Rs. Assets Rs.

Sundry Creditors 20,000 Cash 14,800Bills Payable 3,000 Debtors Rs.20,500Bank Overdraft 17,000 Less: Provision Rs.300 20,200Capital Accounts : Stock 20,000

Jain Rs.70,000 Plant 040,000Gupta Rs.60.000 1,30,000 Building 75,000

1,70,000 1,70,000

They agreed to admit Manisha as partner with effect from 1st January 1995 with 114share in profits on the following terms:

(a) Manisha will bring in capital to the extent of 1I4thof the total capital of the new firmafter all adjustments have been made.

(b) Buildings are to be appreciated by Rs. 14,000 and Plant to be depreciated byRs.7,000.

(c) The Provision on Debtors is to be raised to Rs. 1,000.

(d) The Goodwill of the firm has been valued at Rs, 21,000 and Manisha could n-.-tbring her share of goodwill.

Prepare the Revaluation Account, Partners' Capital Accounts and Balance Sheet of thefirm immediately after Manisha's admission .

.

Liabilities ~Rs. Assets Rs.

Sundry Creditors 25,000 Cash in Hand 15,000Employees' Provident Fund 15,000 Sundry Debtors 10,000Reserve Fund 20,000 Stock 75,000Capital Accounts: Plant and Machinery 1,20,()(X)A 85,000B 75,000

2,20,000 2,20,000-.

(Preparation of balance sheet of reconstituted firm) The Balance Sheet of A andB, who shares profits and losses in 3:2, as on 31'1 December, 2004 was under:

BALANCE SHEETas at 31 122004

On the same date, they admitted C into partnership for'!'rd share on following terms(i) C will introduceRs. 80,000 as her capital. 3(ii) Good",:iII. of the firm is Rs. 24,000 and C brings only 50% of his requisite share of

goodwill In cash.Uii) Stock should be written off.(iv) Plant and Machinery written up by Rs. 1,00,000Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of thenew firm.

17. (Preparation of balance sheet of reconstituted firm) A and B are partners sharingprofits in the ratio of2:3.Their Balance Sheet ason 31.3.2001 is as under-

BALANCE SHEETas at 31.3.2001

Liabilities Rs. Assets Rs. ..Capital Accounts : Plant and Machinery n.OO()

A 67,500 Land and Buildings 75,000B 57,000 Furniture 15,000

Overdraft 9,000 Stock 48,000Creditors 1,15,500 Debtors Rs.43,200Salaries Outstanding 3,000 Less : Provision Rs.I ,200 42,000General Reserve 7,500 Prepaid Insurance 1,500

Cash in Hand 1,800Bank 4,200

2,59,500 2,59,500

C is admitted as partner on the same date on following terms-

(i) The new profit sharing ratio will be 3 : 2 : 1.(ii) C will bring Rs. 48,000 as capital.

(iii) Since C is unable to bring anything is cash for his share of' goodwill, partners decideto value goodwill which is to be calculated on the basis of C's share in profits andthe capital contributed by him.

(iv) Following Revaluations have to be made-Rs.

Plant and Machinery 90,000Stock 60,000Land and Building 90,000Provision for Doubtful Debt 6,000Reduce Furniture by 10%

Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the newfirm.

(Preparation of balance sheet of reconstituted firm) The following is the BalanceSheet of A and B who share profits and losses in the proportion 3 : 2

BALANCE SHEETas at 31.3.2004

Liabilities Rs. Assets Rs.

Sundry Creditors 45,000 Land & Buildings 70,000General Reserve 15,000 Plant & Machinery 35,000Capitals: Stock 15,000

A Rs.60,OOO Debtors RS.25,OOOB Rs.40,000 1,00,000 Less " Provision Rs.3.000 22,000

Cash 18,000

1,60,000 1,60,000

IThey agree to admit C for 5th share into partnership on the following terms:

(i) Provision for Doubtful Debts is to be increased by Rs.l,OOO.(ii) The value of Land and Buildings is to be increased to Rs.80,OOO(iii) The value of Stock is to be increased by Rs.5,OOO.(iv) C brought in as his share of goodwill Rs.15,OOO in cash.(v) C was to bring further cash as would make his capital equal to 20% of the total

capital of the old partners, after above adjustments are carried out.Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the firmafter the admission of C.

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