Page |1

CHAPTER-1 PARTNERSHIP ACCOUNTING – FUNDAMENTALS

Partnership is the relation between two or more persons who have agreed to share the profits of
a business carried on by all or any one of them on behalf of all.

Persons who have entered into partnership with one another are called individually, "partners"
and collectively "a firm", and the name under which their business is carried on is called the
"firm-name".

Features of partnership
1. It is an association of two or more persons (Maximum limited to 50)
2. There is an agreement, whether written or oral to undertake partnership business
collectively.
3. The business for which the partnership is entered into has to be lawful.
4. There is an agreement to share profits and losses in a specific ratio.
5. Business can be carried by all partners collectively of by one partner on behalf of all others.
6. Registration of firm is optional and not compulsory. However there are certain benefits
available to a registered firm.
7. A new partner may be admitted with the consent of all the partners.
8. An existing partner may retire from the firm after giving a proper notice of his intention to
do so and with the consent of all the partners or as per the agreement.
9. With the consent of all the existing partners a minor may be admitted to the benefits of a
partnership business.

Partnership Deed
Partnership deed is a written agreement entered into by the partners that sets forth the
conditions subject to which the partnership has been done.
There is no condition to have a partnership deed to carry on partnership business; however it is
always better to have everything in writing to avoid disputes arising among partners in future.
The partnership deed has to be properly stamped according to the Indian Stamp Act.

The following are the contents of partnership deed:

1. Description of partners like name, address, description, etc.

2. Description of firm like name and style, address, etc.
3. Principal place of business and other place of business.
4. Nature of business.
5. Capital contribution given by partners.
6. Provision related to interest on partner’s capital, interest on drawings, salary to working
partners, interest on loan given by partner, commission to partner, etc.
7. Profit and loss sharing ratio among partners.
8. Rights and duties of partners.
9. Bank operations.
10. Duration for which partnership has been entered into, like – partnership for specific period,
for specific purpose, or it may be at will.
11. Settlement in case of disputes among partners.
12. Any other provision that the partners may decide can be enumerated in the partnership
deed.

CA Manish Mahajan
 Page |2

Provision that apply in the absence of partnership deed or where the partnership deed has
been framed but it is silent of such issues.

1. Profit and loss sharing ratio – It will be equal among all partners.
2. Interest on partner’s capital – No interest shall be allowed.
3. Interest on partner’s drawings – No interest shall be charged.
4. Interest on partner’s loan – Interest will be allowed at 6% p.a.
5. Salary, commission, bonus, remuneration, etc. – No such allowance will be given.

Distribution of partnership profits among partners

In case of partnership form of business, there is a joint right of all partners over the profits of the
business unlike a sole proprietorship business where the proprietor enjoys an exclusive right to the
profits of his business.
Thus it becomes utmost essential to provide a method to distribute the profits of the business in a
fair manner among all the partners in order to avoid disputes. For this purpose, the express
conditions as stated in the partnership deed have to be adhered to, and in its absence the
provisions of the Indian Partnership Act 1932 shall apply mandatorily.

For distribution of partnership profits a separate account in the name of Profit & Loss
Appropriation is made. The following is the pro-forma of P&L Appropriation A/c:

Dr. Profit & Loss Appropriation A/c Cr.

Particulars Amount Particulars Amount
₹ ₹
To Interest on partner’s capital XX By Bal P&L A/c (Profit) XX
A --- By Interest on partner’s
B --- drawings XX
To Partner’s Salary XX A ---
A --- B ---
B ---
To Partner’s Commission/Bonus XX
A ---
B ---
To Reserves (Amount transferred) XX
To Profits transferred in PSR: XX
A ---
B ---
Total: XXXX Total: XXXX

Points to note:
1. The profits transferred to the P&L Appropriation A/c are the final net profit as per P&L
A/c.
2. All the expenses that have to be borne by the firm irrespective of the fact that they are paid
to partner shall be debited to P&L A/c and not P&L Appropriation A/c. Example – Rent
paid to partner for use of his godown by firm, interest paid to partner on the loan advance
by him to the firm.
3. P&L Appropriation A/c provides only a method in which the profits earned by the
partners together are finally distributed among them in a specific manner.
4. Debit side of P&L Appropriation A/c shows the appropriation of the profit and do not
represent any expense, similarly credit side shows the accretion to profits as an adjustment
to give effect to the resolutions of the partnership deed and do not represent any profit.

CA Manish Mahajan
 Page |3

5. It is a common fact that what all that has been earned can only be appropriated and
nothing more. Hence the balance profits that are not divided among partners as interest,
commission or salary, are finally divided in their profit-sharing ratio.

Where the deed provides for division of profits in capital ratio, then the balance profits will have to
be divided in capital ratio.
Capital ratio is the ratio of effective average capital employed.
1. In case of fixed system – it is the ratio of fixed capital balance
2. In case of fluctuating system – it is the ratio of fluctuating capital balance

Journal entries related to P&L Appropriation A/c

1. For transfer of net profit from P&L Account:

P&L A/c Dr.

To P&L Appropriation A/c

2. For interest on partner’s drawings:

Partner’s capital/current A/c Dr.

To Interest on Drawings A/c

3. For transfer of IOD to P&L Appropriation A/c

Interest on Drawings A/c Dr.

To P&L Appropriation A/c

4. For charging interest on partner’s capital

Interest on capital A/c Dr.

To Partner’s capital/current A/c

5. For transfer of IOC to P&L Appropriation A/c

P&L appropriation A/c Dr.

To Interest on capital A/c

6. For salary, bonus, commission, remuneration to partner

Salary/Commission/Bonus to Partner Dr.

To Partner’s Capital/current A/c

7. For transfer of salary, bonus, commission to P&L Appropriation A/c

P&L Appropriation A/c Dr.

To Salary/Commission/Bonus to Partner

8. For transfer of profit to reserve fund

P&L Appropriation A/c Dr.

To General Reserve

CA Manish Mahajan
 Page |4

9. For sharing of balance profits by partners in PSR

P&L Appropriation A/c Dr.

To Partner’s Capital/current A/c

Difference between Profit & Loss A/c and Profit & Loss Appropriation A/c

P&L A/c P&L Appropriation A/c

It is prepared after trading account It is prepared after P&L account
It shows the net profit earned by the business
It shows how the net profit earned by the
business is distributed by partners
The debit side of the account represents all The debit side represents the appropriations
expenses
It follows matching concept It does not require matching concept
It does not require the provisions of It follows the resolutions contained in
partnership deed partnership deed

Difference between charge against profit & Appropriation of profit

Charge against profit Appropriation of profit

It refers to those amounts that are deducted It refers to the distribution of profit
from profits
It means all expenses It is a mode/means to divide profits
It is made even if there is a loss It can only be made in the presence of profits
It is debited to trading and P&L A/c It is debited to P&L Appropriation A/c
It is done before appropriation It is done after creation of all charges
Ex – Rent, Salary Ex – IOC, General Reserve

PARTNER’S CAPITAL ACCOUNTS

The amounts contributed by the partners are shown under their capital accounts. There are two
methods by which the partner’s capital accounts can be maintained. These are:
1. Fixed capital accounts method
2. Fluctuating capital accounts method

Fixed capital accounts method

Under this system of maintaining partner’s capital accounts, two types of accounts are made for
each partner. One account for all his capital contributions – Capital A/c and the other for routine
affairs, appropriations and adjustments – Current A/c.
1. Capital A/c – this account records the initial capital contribution, additional capital
contributed, permanent capital withdrawal and balance capital invested in firm. No other
amount is entered in this account. This is done to show how much capital has been
invested by each partner. This account will not change unless there is any addition or
reduction of capital by a partner. Hence this system gets the name of fixed capital accounts
where the partner’s capital remains fixed over a period of time. It will always have credit
balance or at most a nil balance.

CA Manish Mahajan
 Page |5

Dr. Partner’s Capital A/c Cr.

Particulars Mr. X Mr. Y Particulars Mr. X Mr. Y
₹ ₹ ₹ ₹
To Cash/Bank XX XX By Bal b/d XX XX
(Capital withdrawal) By Cash/Bank XX XX
To Bal c/d XX XX (Additional Capital)
Total: XXXX XXXX Total: XXXX XXXX

2. Current A/c – this account records all the other transactions which are not shown in the
capital account of a partner. These are – salary, interest on capital, commission, bonus to
partner, interest on drawings, drawings, and share of profit or loss of partner. These
adjustments may result in debit balance or credit balance in the current account of partner.
Dr. Partner’s Current A/c Cr.
Particulars Mr. X Mr. Y Particulars Mr. X Mr. Y
₹ ₹ ₹ ₹
To Bal b/d* XX XX By Bal b/d* XX XX
To Cash/Bank XX XX By IOC XX XX
(Normal withdrawal) By Commission XX XX
To IOD XX XX By Salary XX XX
To P&L App A/c XX XX By P&L App A/c XX XX
(Loss) (Profit)
To Bal c/d# XX XX By Bal c/d# XX XX
Total: XXXX XXXX Total: XXXX XXXX
*# - Any one

Fluctuating capital accounts method

Under this system of maintaining partner’s capital accounts, only one account is prepared for each
partner. All the transactions relating to a partner will be recorded in only one account i.e. –
partner’s capital account. Since all entries are recorded in a single account it is not possible to
determine at once about the actual capital contribution by a partner. Also the net effect of all these
entries may result in debit or credit or nil balance in a partner’s capital account at the end of the
accounting period.

Dr. Partner’s Capital A/c Cr.

Particulars Mr. X Mr. Y Particulars Mr. X Mr. Y
₹ ₹ ₹ ₹
To Bal b/d* XX XX By Bal b/d* XX XX
To Cash/Bank XX XX By Cash/Bank XX XX
(Capital withdrawal) (Additional Capital)
To Cash/Bank XX XX By IOC XX XX
(Normal withdrawal) By Commission XX XX
To IOD XX XX By Salary XX XX
To P&L App A/c XX XX By P&L App A/c XX XX
(Loss) (Profit)
To Bal c/d# XX XX By Bal c/d# XX XX
Total: XXXX XXXX Total: XXXX XXXX
*# - Any one

CA Manish Mahajan
 Page |6

Interest on partner’s capital

The money invested by a partner in business commands some cost in the way of opportunity cost.
In order to compensate this cost, the firm may allow interest to partner on his capital contribution
at a rate which is fixed at the time of entering into partnership and as stated in the deed.

IOC = Capital x Rate x Time

12

Situations:

1. When IOC is an appropriation of profit:

- In this case IOC will be allowed only if there is enough profit available to provide IOC.
- Where the profits are not adequate to provide for full IOC, then IOC shall be first
computed as actual and then the ratio of IOC will be calculated, finally available profits
will be divided as IOC in the ratio as calculated.
- In case of loss, no IOC shall be allowed.
2. When IOC is a charge against profit:
Actual IOC will be allowed even if there is a loss or after providing for IOC, it results into
loss.

Interest on partner’s drawings

The amount withdrawn by a partner involves cost to the firm in the form of interest loss on the
amount taken away by the firm. As a consequence the partner compensates the firm by paying
interest on his drawings in the manner and at the rate as specified in the deed.
IOD = Drawings x Rate x Time
12
Interest on drawing has to be calculated for the time for which the amount has remained out of
business starting from the date of drawing till the close of the year.
Note: when the date of drawing is not available then interest will be charged for average period of 6
months.
Where drawings are done at more than one time during the year, IOD has to be calculated for
each drawing separately and then consolidated.
Simple Method:
Date Amount No of Months to 31st Dec Interest @ 15% p.a
₹
1st Feb 2000 11 2000*15*11 = 275
100*12
1st May 5000 8 500
30th June 2000 6 150
Total 925
Product Method:
Date Amount No of Months to 31st Dec Product of amount and months
₹
1st Feb 2000 11 22000

CA Manish Mahajan
 Page |7

1st May 5000 8 40000

30th June 2000 6 12000
Total 74000
Interest is then calculated on the total product amount for only one month at the given rate of
interest.
IOD = 74000*15*1 = 925
100*12

Formula Approach:
Sometimes partners decide to withdraw equal amounts at frequent intervals. In such a situation
we can make use of formula approach to calculate IOD in a very simple manner. However it can
be done if 2 conditions are satisfied:

1. The amount of drawings remains same throughout the year

2. The period of interval b/w two drawings is same
IOD = Amount x Rate x Average Period
12
Where average period is calculated as:
AP = (time left after first drawing + time left after last drawing)/2
The time left has to be calculated from the close of the year, half year, and quarter as the case may
be.

The following table shows the average period in different situations:

S.No When drawings are made at the

Beginning Middle End
Of each month for
6.5 6 5.5
full year
Of each month for
3.5 3 2.5
half year
Of each quarter of
7.5 6 4.5
the year

Interest on partner’s Loan

The loan given by a partner to the firm shall carry interest at such rate as provided for in the
partnership deed. However, in the absence of such deed or such clause, interest shall be allowed at
the rate of 6% p.a.
The interest on partner’s loan is a charge against profits and thus it will be debited to profit and
loss account and not appropriation account.
Journal entry:
1. For providing interest on loan

Interest on partner’s loan A/c Dr.

To Partner’s capital/current A/c

CA Manish Mahajan
 Page |8

2. For transferring interest to P&L A/c

P&L A/c Dr.

To Interest on partner’s loan A/c

Past Adjustments in capital accounts of partners

Sometimes a few errors and omissions in the recording of transactions or the preparation of
financial statements are found after the final accounts have been prepared and the profits
distributed among the partners.

These omissions and errors may be in respect of:

1. Interest on capitals,
2. Interest on drawings,
3. Interest on partners’ loan,
4. Partner’s salary, partner’s commission or
5. Outstanding expenses.
6. There may also be some changes in the provisions of partnership deed or system of
accounting having impact with retrospective effect.

All these acts of omission and commission need adjustments for correction.

Now instead of altering all the old accounts, necessary adjustments can be made either;

1. Through Profit and Loss Adjustment Account, or

2. Directly in the capital accounts of the concerned partners.

Journal entry for adjustment is:

Gaining partner capital/current A/c Dr.

To Losing Partner capital/current A/c

Steps to rectify the errors:

1. First calculate what should be the correct treatment to the point in question, its effect of
partners and its amount. This amount is shown as correct amount.
2. Then find out what has been wrongly done, its effect on partners and its amount. This
amount is shown as wrong amount.
3. Find out the net effect of point (1) and (2).
4. The partner capital for which amount as per (1) is more than (2) will be the sacrificing
partner and his account is to be credited and the partner capital for which amount as per
(2) is more than (1) will be the gaining partner and his account will be debited.
5. Now pass the adjustment entry.

Guarantee of minimum profits

Sometimes a partner is admitted to the firm with a guarantee that his profits in any year shall not
be less than the minimum guaranteed amount. Such a guarantee may be given by:
1. All partners in their profit-sharing ratio, or
2. Only one partner fully from his share of profits, or
3. All partners in a specific ration other than their profit-sharing ratio.

CA Manish Mahajan
 Page |9

When all partners give a guarantee, it is also called guarantee by the firm.

Steps to calculate guarantee amount:

1. Distribute the profits as per P&L Appropriation account in normal manner.

2. Check whether the minimum guarantee profits are given to the partner as per point 1
above.
3. If yes, then the guarantee clause will not apply since the partner already gets more than
guarantee amount.
4. If no, then find out the shortfall of profit given against the guaranteed profit.
5. Allocate the shortfall to the guaranteed partner by taking such amount of shortfall from
the profits of those partners who have given the guarantee and in such ratio as decided.
6. Prepare a fresh P&L appropriation account now.

Treating manager as a partner

The partners may sometimes decide to admit their manager to the business as a partner like other
partners. This may be done either prospectively or retrospectively. When a manager is admitted as
a partner prospectively for future years then there arises no problem of past adjustments. However,
if they decide to admit him with retrospective effect, then previous years’ profits need to be
adjusted.

Following conditions change when manager becomes a partner:

1. The manager’s loan to the business if any will be treated as his capital.
2. He will be allowed interest at the rate of interest on capital and not interest on loan.
3. The salary/commission or bonus which he was entitled to as a manager will no longer be
given to him. However, in order to compensate him a lower amount may be given to him
as partner salary.
4. He will be entitled to profits in such ratio as may be decided.

Steps to make adjustment for change in managers’ designation to partner:

1. Calculate the actual amount that the manager has received till date when he was a
manager for all those past years which require adjustment.
2. Now calculate for all such years, revised net profits by adding back the allowances which
he received as a manager.
3. After finding out revised net profits, calculate the amount which the manager is entitled
to as a partner. (adjust interest on loan, interest on capital, salary to partner, etc.)
4. Now check what extra amount the manager will get. (Amount as per Point 3 minus as
per point 1)
5. Pass a journal entry to adjust the amount as per point 4.

Existing partner’s capital/current A/c Dr.

To Manager A/c
(Amount is debited to existing partners in their PSR)

CA Manish Mahajan
 P a g e | 10

Test Your Knowledge & Practice

Partnership deed

1. X and Y are partners in a firm having no partnership deed. X and Y have contributed ₹ 1,00,000 and ₹
2,00,000 respectively as capitals. Y wants that profit should be distributed in the ratio of capitals but X
does not agree to this. State giving reason who is correct in this case.
(Ans: X is correct)

2. X and Y are partners in a firm having no partnership deed. Y has advanced ₹ 10,000 as loan to the firm.
He claims interest at the usual interest charged by banks. The rate of interest is 13% p. a. X does not want
to give any interest. State giving reason who is correct in this case.
(Ans: Both X and Y are not correct)

3. X and Y are partners in a firm having no partnership deed. Y has advanced ₹ 10,000 as loan to the firm.
He claims interest at the rate of 6% p.a. X does not want to give any interest since there is a Net Loss of ₹
50,000 during the current year. State giving reason who is correct in this case.
(Ans: Y is correct)

4. X and Y are partners in a firm having no partnership deed. X spends twice the time that Y devotes to
business. X claims that he should get a salary of ₹ 6,000 per month for extra time spent. Y does not want
to give any salary. State giving reason who is correct in this case.
(Ans: Y is correct)

5. X and Y are partners in a firm having no partnership deed. X and Y have contributed ₹ 1,00,000 and ₹
5,00,000 respectively as capitals. Y claims interest @ 6% p.a. on excess capital of ₹ 4,00,000. X does not
want to give any interest. State giving reason who is correct in this case.
(Ans: X is correct)

6. X and Y are partners in a firm having no partnership deed. X made a drawing of ₹ 10,000. Y wants that
an interest @ 6% p.a. should be charged on X’s drawings of ₹ 10,000 but X does not agree to this. State
giving reason who is correct in this case.
(Ans: X is correct)

7. Following differences have arisen among P, Q and R. State who is correct in each case:
(a) P used ₹ 20,000 belonging to the firm and made a profit of ₹ 5,000. Q and R want the amount to be
given to the firm?
(b) Q used ₹ 5,000 belonging to the firm and suffered a loss of ₹ 1,000. He wants the firm to bear the
loss?
(c) P and Q want to purchase goods from A Ltd., R does not agree?
(d) Q and R want to admit C as partner, P does not agree?
(Ans: (a) P must pay ₹ 25,000; (b) Q must pay ₹ 5,000; (c) Goods maybe bought from A Ltd; (d) C cannot be
admitted)

8. M and N are partners in a firm. M has given a loan of ₹ 8,000 to the firm on 1st July, 2023. The
Partnership Deed is silent upon the question of provision of interest on partner's loan. Compute the
amount of interest payable on the loan advanced by M to the firm, assuming the books are closed on 31st
March each year.
(Ans: Interest on M's loan ₹ 360)

9. A, B and C are partners in a firm. They have no partnership agreement for their guidance. At the end of
the first year of the commencement of the firm, they have faced the following problems:
(a) A wants that interest on capital should be allowed to the partners but B and C do not agree.
(b) B wants that the partners should be allowed to draw salary but A and C do not agree.

CA Manish Mahajan
 P a g e | 11

(c) C wants that the loan given by him to the firm should bear interest @ 10% p.a. but A and B do not
agree.
(d) A and B having contributed larger amounts of capital, desire that the profits should be divided in
the ratio of their capital contribution but C does not agree.
State how you will settle the disputes if the partners approach you for the purpose.
(Ans: (a) A's claim is not accepted, (b) B's claim is not accepted, (c) C's claim is not accepted; only 6% p.a should be
allowed by way of interest on the loan, (d) Profits or losses should be distributed among the partners equally. The
claim made by A and B is not accepted)

10. A and B are partners in a firm sharing profits equally. They had advanced to the firm a sum of ₹ 30,000
as a loan in their profit-sharing ratio on 1st October, 2023. The Partnership Deed is silent on the
question of interest on the loan from partners. Compute the interest payable by the firm to the partners,
assuming the firm closes its books on 31st March each year.
(Ans: Interest on partner's loan ₹ 450)

11. Manav and Raghav are partners with capitals of ₹ 50,000 and ₹ 60,000 respectively. On 1st January,
2023, Manav gives a loan of ₹ 10,000 and Raghav introduced ₹ 20,000 as additional capital. Profit for
the year ended 31st March, 2023 was ₹ 15,200. There is no Partnership Deed. Both Manav and Raghav
expect interest @ 10% p.a. on the loan and additional capital advanced by them. Show how the profits
would be divided? Give reasons.
(Ans: Divisible Profit—₹ 15,050, Manav and Raghav share ₹ 7,525 each]

12. Ram and Sham were partners with capital contribution of ₹ 10,00,000 and ₹ 5,00,000 respectively.
They do not have a Partnership Deed. Ram wants that the profits of the firm should be shared in their
capital ratio. Sham convinced Ram that profits should be shared equally. Explain how Sham would
have convinced Ram for sharing the profit equally.

13. Mohan and Ram were partners with capital contribution of ₹ 10,00,000 and ₹ 5,00,000 respectively.
They do not have a Partnership Deed. Mohan wants that the firm should allow interest on capital @
6% p.a. Ram convinced Mohan that interest cannot be allowed on capital to which Mohan agreed after
discussion. What argument must have been put forward by Ram that convinced Mohan?

14. Sohan and Mohan were partners in a firm. Their drawings during the year were ₹ 1,00,000 and ₹
75,000respectively. They do not have a Partnership Deed. Mohan wanted that the firm should charge
interest on drawings @ 6% p.a. Sohan convinced Mohan that interest cannot be charged on drawings
to which Mohan agreed after discussion. What argument must have been put forward by Sohan that
convinced Mohan.

15. Ajay and Vijay were partners sharing profits and losses in the ratio of 3 : 2. They decided that from 1st
April, 2023 they will share profits and losses equally. On that date, the Balance Sheet of the firm had
credit balance of ₹ 1,00,000 in General Reserve. Vijay was of the opinion that it should be credited to
the Capital Accounts equally. Ajay was of the opinion that it should be credited to the Capital
Accounts in their old profit-sharing ratio. Vijay agreed to the views of Ajay. Explain what arguments
must have been put forward by Ajay to which Vijay agreed.

Profit and loss appropriation account

16. A and B are partners. A's Capital is ₹ 1,00,000 and B's Capital is ₹ 60,000. Interest on capital is payable
@ 6% p.a. B is entitled to a salary of ₹ 3,000 per month. Profit for the current year before interest and
salary to B is ₹ 80,000.
Prepare Profit and Loss Appropriation Account.
(Ans: Share of Profit: A—₹ 17,200; B—₹ 17,200)

CA Manish Mahajan
 P a g e | 12

17. On 1st April, 2023, Jay and Vijay entered into partnership for supplying laboratory equipment 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 clearly, prepare Profit and Loss Appropriation Account for the year ended
31st March, 2024.
(Ans: Interest on Capital: Jay— ₹ 4,800; Vijay—₹ 3,000)

18. 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. The Partnership Deed provides that interest on capital
should be allowed @ 10% p.a. and that Z should be allowed a salary of ₹ 2,000 per month. The profits
of the firm for the year ended 31st March, 2024 after debiting Z's salary were ₹ 4,00,000. Prepare Profit
and Loss Appropriation Account.
(Ans: Net Divisible Profit—₹ 2,75,000)

19. Amit and Vijay started a partnership business on 1st April, 2023. Their capital contributions were ₹
2,00,000 and ₹ 1,50,000 respectively. The Partnership Deed provided inter alia that:
(a) Interest on capital @ 10% p.a.
(b) Amit is to get a salary of ₹ 2,000 per month and Vijay ₹ 3,000 per month.
(c) Profits are to be shared in the ratio of 3:2.
Profit for the year ended 31st March, 2024 before making above appropriations was ₹ 2,16,000. Interest
on drawings amounted to ₹ 2,200 for Amit and ₹ 2,500 for Vijay. Prepare Profit and Loss
Appropriation Account.
(Ans: Share of Profit: Amit—₹ 75,420; Vijay—₹ 50,280)

20. X and Y are partners sharing profits in proportion of 3:2 with capitals of ₹ 80,000 and ₹ 60,000
respectively, interest on capital is agreed @ 5% p.a. Y is to be allowed an annual salary of ₹ 6,000
which has not been withdrawn. Profit for the year ended 31st March, 2024 prior to calculation of
interest on capital but after charging Y's salary amounted to ₹ 24,000. A provision of 5% of the profit is
to be made in respect of commission to the Manager. Prepare an account for the allocation of profits.
(Ans: Share of Profit: X— ₹ 9,300; Y—₹ 6,200)

21. D, E and F were partners in a firm sharing profits in the ratio of 5:7:8. Their fixed capitals were D ₹
5,00,000; E ₹ 7,00,000 and F ₹ 8,00,000. Their Partnership Deed provided for the following:
(i) Interest on capital @ 10% p.a.
(ii) Salary of ₹ 10,000 per month of F.
(iii) Interest on drawing @ 12% p.a.
D withdrew ₹ 40,000 on 31st January, 2023; E withdrew ₹ 50,000 on 31st March, 2023 and F withdrew
₹ 30,000 on 31st December, 2023.
During the year ended 31st December, 2023 the firm earned a profit of ₹ 3,50,000. Prepare Profit and
Loss Appropriation Account for the year ended 31st December, 2023.
(Ans: ₹ 38,900; D's share: ₹ 9,725; E's share: ₹ 13,615; F's share: ₹ 15,560)

22. 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 made a 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.
(Ans: Net Divisible Profit—₹ 1,40,000; A's share—₹ 50,000;B's share—₹ 44,000; C’s share—₹ 46,000)

CA Manish Mahajan
 P a g e | 13

Calculation of interest on drawings

23. Mr. Ashok Gupta is a partner in a firm. He withdrew the following amounts during the year 2023:-
January 31 ₹ 8,000
March 31 ₹ 6,000
June 30 ₹ 5,000
September 30 ₹ 12,000
October 31 ₹ 10,000
Calculate interest on drawings @ 9% p.a. for the year ended on 31st December, 2023.
(Ans: Interest on Drawings: ₹ 1,710)

24. Ram and Mohan drew for private use ₹ 1,20,000 and ₹ 80,000. Interest is chargeable @ 6% p.a. on the
drawings. What is the total interest?
(Ans: Ram: ₹ 3,600 and Mohan: ₹ 2,400)

25. Calculate Interest on Suman's drawings, if she had withdrawn:

(i) ₹ 14,000 during the year and rate of interest on drawing is 14% per annum.
(ii) ₹ 14,000 on 01.01.2023 and rate of interest on drawing is 14% per annum.
(iii) ₹ 14,000 and rate of drawing 14%.
In all the above cases books are being closed on 31st December every year.
(Ans: (i) ₹ 980 (ii) ₹ 1,960 (iii) ₹ 1,960)

26. A and B are partners in a firm. They withdrew ₹ 48,000 and ₹ 36,000 respectively during the year
evenly at 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.
(Ans: B: ₹ 2,400 and C: ₹ 1,800)

27. 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, 2023. Calculate interest on drawings @ 5% p.a.
(Ans: Interest: ₹ 350)

28. A and B are partners sharing profits equally. A drew regularly ₹ 4,000 at the end of every month for six
months ended 30th September, 2023. Calculate interest on drawings @ 5% p.a.
(Ans: Interest: ₹ 250)

29. Rita and Rohan 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. Rita withdrew the following amounts during the
year to pay the hostel expenses of her son.
1st April ₹ 10,000
1st June ₹ 9,000
1st November ₹14,000
1st December ₹ 5,000
Rohan 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.
(Ans: Interest on Drawings: Rita—₹ 1,500; Rohan—₹ 2,250)

30. Calculate interest on drawings of Mr. Avinash @ 10% p.a. for the year ended 31st March, 2024, in each
of the following alternative cases:
Case 1. If he withdrew ₹ 7,500 in the beginning of each quarter.

CA Manish Mahajan
 P a g e | 14

Case 2. If he withdrew ₹ 7,500 at the end of each quarter.

Case 3. If he withdrew ₹ 7,500 during the middle of each quarter.
(Ans: Case 1—₹ 1,875; Case 2— ₹ 1,125; Case 3—₹ 1,500)

31. A, B and C started business on 1st July, 2023. Calculate interest on drawings of Mr. B @ 9% p.a. for
nine months ending 31st March, 2024, if he withdrew ₹ 10,000 p.m. at the end of every month.
(Ans: ₹ 2,700)

Calculation of Interest on Capital

32. A and B are partners sharing profit and loss equally. Their capitals as on 01.01.2023 were ₹ 90,000 and
₹ 60,000 respectively. They decided to allow interest on capitals @ 10% p.a. The profits for the year
2023 were ₹ 10,000. Prepare related accounts to allocate interest on capitals, in each of the following
cases:
(a) Interest on capital is an appropriation of profits.
(b) Interest on capital is a charge against profits.
(Ans: (a) Interest to A: ₹ 6,000, B: ₹ 4,000; (b) Interest to A: ₹ 9,000, B: ₹ 6,000 and Loss transferred to A and B: ₹
2,500 each)

33. A and B are partners sharing Profit and Loss in the ratio of 3:2 having Capital Account balances of ₹
50,000 and ₹ 40,000 on 1st April, 2023. On 1st July, 2023, A introduced ₹ 10,000 as his additional
capital whereas B introduced only ₹ 1,000. If the interest on capital is allowed to partners @ 10% p.a.
Calculate interest on capital if the financial year closes on 31st March.
(Ans: A—₹ 5,750; B—₹ 4,075)

34. X and Y contributed ₹ 20,000 and ₹ 10,000 respectively. They decide to allow interest on capital @ 6%
p.a. Their respective share of profits is 2:3 and the business profit (before interest) for the year is ₹
1,500. Show distribution of profits (i) where there is no agreement except for interest on capitals and (ii)
where there is a clear agreement that the interest on capitals will be allowed even if it involves the firm
in loss.
(Ans: (i) Interest on Capital: X— ₹ 1,000; Y—₹ 500; (ii) Loss: X— ₹ 120; Y— ₹ 180)

35. A and B started business on 1st April, 2023 with capitals of ₹ 15,00,000 and ₹ 9,00,000 respectively. On
1st October, 2023, they decided that their capitals should be ₹ 12,00,000 each. The necessary
adjustments in capitals were made by introducing or withdrawing by cash. Interest on capital is allowed
@ 8% p.a. Compute interest on capital on 31st March, 2024.
(Ans: A—₹ 1,08,000; B—₹ 84,000)

36. X and Y are partners sharing profits and losses in the ratio of 3:2. X is a non-working partner and
contributes ₹ 20,00,000 as his capital. Y is a working partner of the firm. The Partnership Deed
provides for interest on capital @ 8% p.a. and salary to every working partner @ ₹ 8,000 per month.
Net profit before providing for interest on capital and partner's salary for the year ended 31 st March,
2024 was ₹ 80,000. Show the distribution of profit.
(Ans: X—₹ 50,000; Y—₹ 30,000)

37. X and Y started business on 1st April, 2023 with Capitals of ₹ 2,50,000 and ₹ 1,50,000 respectively. On
1st October 2023, they decided that their capitals should be ₹ 2,00,000 each. The necessary adjustments
in the capitals were made by introducing or withdrawing cash. Interest on capital is allowed at 8% p.a.
Calculate the Interest on X’s Capital on March 31, 2024.
(Ans: Interest: ₹ 18,000)

CA Manish Mahajan
 P a g e | 15

38. From the following Balance Sheet of X and Y, calculate interest on capital @ 6% p.a. payable to Y for
the year ended 31st March, 2024:
Liabilities ₹ Assets ₹
X’s Capital A/c 50,000 Sundry Assets 1,10,000
Y’s Capital A/c 40,000
P&L App A/c 2023-24 20,000
1,10,000 1,10,000
During the year, Y’s drawings were ₹ 15,000 and profit during 2023-24 was ₹ 30,000.
(Ans: Interest on Y's Capital—₹ 3,000)

39. From the following Balance Sheet of A and B, calculate interest on capital @ 8% p.a. for the year ended
31st March 2024:
Liabilities ₹ Assets ₹
A's Capital A/c 1,60,000 Fixed Assets 3,00,000
B’s Capital A/c 1,40,000 Drawings — A 40,000
P&L App A/c 2023-24 1,00,000 Other Assets 60,000
4,00,000 4,00,000
During the year, A's drawings were ₹ 40,000 and B's drawings were ₹ 50,000. Profit for the year was ₹
1,50,000.
(Ans: A—₹ 10,800; B—₹ 13,200)

40. X, Y and Z are partners in a firm. Their Capitals as on April 1, 2023 were ₹ 5,00,000; ₹ 4,00,000 and ₹
3,00,000 respectively. On July 1, 2023 they introduced further Capitals of ₹ 1,00,000; ₹ 80,000 and ₹
50,000 respectively. On February 1, 2024 Y withdrew ₹ 15,000 from his Capital. Interest is to be
allowed @ 8% p.a. on the Capitals. Compute interest on Capitals for the year ending March 31, 2024.
(Ans: Interest on Capitals- X: ₹ 46,000; Y: ₹ 36,600 and Z: ₹ 27,000)

41. A and B commenced business on 1st January, 2023 with capitals of ₹ 1,20,000 and ₹ 60,000
respectively. They decided to share profits in the Capital Ratio. You are required to calculate Capital
Ratio on the basis of the following particulars:-
Date of Transaction Capital Introduced Capital Withdrawn
A (₹) B (₹) A (₹) B (₹)
1st April 15,000 30,000
1st July 30,000 15,000
1st Sept. 18,000
1st Oct. 24,000 6,000
1st Nov. 9,000 4,500
Also calculate interest on capitals if it is @ 9% p.a.
(Ans: Capital ratio 3:2; Interest on Capital- A: ₹ 10,125; B: ₹ 6,750)

Salary or commission to partners

42. A, B and C are partners sharing profits and losses in the ratio of 2 : 2 : 1 respectively. A is entitled to a
commission of 10% on the net profit before charging such commission. The net profit before charging
commission is ₹ 1,10,000. Find out commission payable to A.
(Ans: ₹ 11,000)

CA Manish Mahajan
 P a g e | 16

43. 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. Find out commission payable to Z.
(Ans: ₹ 20,000)

44. X and Y are partners in a firm. X is entitled to a salary of ₹ 10,000 per month together with a
commission of 10% of the net profit after partners' salaries but before charging any commission. Y is
entitled to a salary of ₹ 25,000 p.a. together with a commission of 10% of the net profit after charging
all commission and partners' salaries. The net profit before providing for partners' salaries and
commission for the year ended 31st March, 2024 was ₹ 4,20,000. Show the distribution of profit.
(Ans: X's Commission: ₹ 27,500; Y's Commission: ₹ 22,500; Net Profit: ₹ 2,25,000; X and Y Share: ₹ 1,12,500
each)

Interest on Partner's Loan to the Firm

45. 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 ₹ 30,000 as a loan in their profit-sharing ratio on 1st October, 2023. The Partnership Deed is silent
on the question of interest on loans from partners. Compute interest payable by the firm to the partners,
assuming the firm closes its books on 31st March.
(Ans: Interest Payable to A: ₹ 540; Interest Payable to B: ₹ 360)

46. X and Y are partners sharing profits and losses in the ratio of 2:3 with capitals of ₹ 2,00,000 and ₹
3,00,000 respectively. On 1st October, 2023, X and Y granted loans of ₹ 80,000 and ₹ 40,000
respectively to the firm. Show distribution of profits/losses for the year ended 31st March, 2024 in each
of the following alternative cases:
Case 1. If the profits before any interest for the year amounted to ₹ 21,000.
Case 2. If the profits before any interest for the year amounted to ₹ 3,000.
Case 3. If the profits before any interest for the year amounted to ₹ 5,000.
(Ans: (Interest on X's Loan: ₹ 2,400; Interest on Y's Loan: ₹ 1,200), Case 1. Profit: X ₹ 6,960; Y ₹ 10,440; Case 2.
Loss: X ₹ 240; Y ₹ 360; Case 3. Profit: X ₹ 560; Y ₹ 840)

47. B and C are partners sharing the profits in the ratio of 2:3 with capitals of ₹ 1,20,000 and ₹ 60,000
respectively. On 1st October, 2023, B and C granted loans of ₹ 2,40,000 and ₹ 1,20,000 respectively to
the firm. The losses for the year ended 31st March, 2024 before any interest amounted to ₹ 9,000. Show
distribution of profit/loss.
(Ans: Share of Loss: B—₹ 7,920; C—₹ 11,880)

Division of Profits among Partners and Partners' Capital Accounts

48. C and D are partners in a firm; C has contributed ₹ 10,000 as capital and D ₹ 6,000. Interest is payable
@ 6% p.a. and D is entitled to a salary of ₹ 300 per month. In 2023-24, the profits were ₹ 8,000 before
interest and salary. Divide the amount between C and D.
(Ans: C: ₹ 2,320 and D: ₹ 5,680)

49. A and B are partners sharing profits in the ratio of 3:2 with capitals of ₹ 50,000 and ₹ 30,000
respectively. Interest on capital is agreed @ 6% p.a. B is to be allowed an annual salary of ₹ 2,500.
During 2023-24, the profits of the year prior to calculation of interest on capital but after charging B's
salary amounted to ₹ 12,500. A provision of 5% of the profits is to be made in respect of Manager's
Commission. Prepare an account showing the allocation of profits and the Partners' Capital Accounts.
(Ans: Share of Profit: A: ₹ 4,170 and B: ₹ 2,780; Capital Account Balances: A: ₹ 57,170 and B: ₹ 37,080)

CA Manish Mahajan
 P a g e | 17

50. S and K are partners sharing profits and losses in the ratio of 2:1. On 1st April, 2023 their Capitals
were: S—₹ 50,000 and K—₹ 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 K for the whole year, the amount of loan being ₹ 30,000.
(c) Interest on partners' drawing @ 6% p.a. Drawings: S ₹ 10,000 and K ₹ 8,000.
(d) 10% of the divisible profits is to be transferred to Reserve.
They earned profit of ₹ 70,260 for the year ended 31st March, 2024.
(Ans: Closing Balance of Capital: S: ₹ 80,900; K: ₹ 53,110; Share of Profit: S: ₹ 38,700; K: ₹ 19,350;
Reserve: ₹ 6,450)

51. X and Y are partners sharing profits and losses in the ratio of 7:3. Their Capital Accounts as at 1st April,
2023 stood at X—₹ 5,00,000; Y—₹ 4,00,000. The partners are allowed interest on capital @ 5% p.a.
The drawings of the partners during the year ended 31st March, 2024 amounted to ₹ 72,000 and ₹
50,000 respectively. The profit for the year before allowing interest on capital and salary to Y @ ₹ 5,000
per month amounted to ₹ 8,00,000. 10% of the divisible profit is to be set aside as General Reserve.
Prepare an account showing the allocation of profits, Partners' Capital and Current Accounts.
(Ans: Closing Balance of Current A/c’s: X: ₹ 3,90,850; Y: ₹ 2,17,650; Share of Profit: X: ₹ 4,37,850; Y:
₹ 1,87,650; Reserve: ₹ 69,500)

52. On 1st April, 2023, A and B entered into partnership contributing ₹ 60,000 and ₹ 45,000 respectively.
They agreed to share profits and losses in the ratio of 3:2. B is allowed a salary of ₹ 12,000 per year.
Interest on capital is to be allowed @ 10% p.a. During the year, A withdrew ₹ 9,000 and B ₹ 18,000 as
drawings. The interest on drawings paid by A and B was ₹ 150 and ₹ 210 respectively. Profit as at 31st
March, 2024 before the above-mentioned adjustments was ₹ 35,000. Show distribution of profits by
preparing Profit and Loss Appropriation Account of the firm. Prepare Partners' Capital Accounts also.
(Ans: Profit of A: ₹ 7,716; B: ₹ 5,144 and Balance of Capital: A: ₹ 64,566; B: ₹ 48,434)

53. A and B are partners in a firm sharing profits and losses as A 70% and B 30%. Their respective capitals
as at 1st April, 2023 stand as A ₹ 25,000 and B ₹ 20,000. The partners are allowed 5% p.a. by way of
interest on capitals. The drawings of the partners during the year ended 31st March, 2024 amounted to
₹ 3,500 and ₹ 2,500 respectively.
The profit during the year, before charging interest on capital and annual salary of B @ ₹ 3,000,
amounted to ₹ 40,000,10% of this profit is to be kept in Reserve.
You are asked to show Partners' Current Accounts and Capital Accounts recording the above
transactions.
(Ans: Current Accounts: A: ₹ 19,275; B: ₹ 10,725)

54. A and B are partners with the following capital balances as on 1st January 2023:
Capital Account Current Account
A ₹ 3,00,000 ₹ 30,000 (Cr)
B ₹ 90,000 ₹ 6,000 (Cr)
On 1st July 2023, A withdrew ₹ 60,000 from his capital and B added ₹ 30,000 as further capital on the
same date. Interest on Capital is agreed at 6% p.a. Manager of the firm is entitled to receive a
commission of 10% of the profit before any adjustment is made according to the deed. Profit earned
during the year was ₹ 1,20,000. Show the Capital Accounts and Current Accounts of the partners who
share profits in the ratio 3:2. Firm closes the books of accounts on 31st December every year.
(Ans: Capital A/c's: A: ₹ 2,40,000; B: ₹ 1,20,000; Current A/cs: A: ₹ 97,500; B: ₹ 46,500)

55. P, Q and R are in a partnership and as at 1st April, 2023 their respective capitals were: ₹ 40,000, ₹
30,000 and ₹ 30,000. Q is entitled to a salary of 16,000 and R ₹ 4,000 p.a. payable before division of
profits. Interest is allowed on capital @ 5% p.a. and is not charged on drawings. Of the net divisible

CA Manish Mahajan
 P a g e | 18

profits, P is entitled to 50% of the first ₹ 10,000, Q to 30% and R to 20%, rest of the profits are shared
equally. The profits for the year ended 31st March, 2024, after debiting partners' salaries but before
charging interest on capital were ₹ 21,000 and the partners had drawn ₹ 10,000 each on account of
salaries, interest and profit. Prepare Profit and Loss Appropriation Account showing the distribution of
profit and the Capital Accounts of the Partners.
(Ans: Net Divisible Profit: ₹ 16,000; P: ₹ 7,000; Q: ₹ 5,000; R: ₹ 4,000; Closing balances of Capital
A/c’s: P: ₹ 39,000; Q: ₹ 42,500; R: ₹ 29,500)

56. A, B and C were partners in a firm having capitals of ₹ 60,000; ₹ 60,000 and ₹ 80,000 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 interest on capital @ 5% p.a. C being the working
partner was also entitled to a salary of ₹ 6,000 p.a. The profits were to be divided as:
(i) The first ₹ 20,000 in proportion to their capitals.
(ii) Next ₹ 30,000 in the ratio of 5:3:2.
(iii) Remaining profits to be shared equally.
The firm made a profit of ₹ 1,56,000 before charging any of the above items. Prepare the Profit and
Loss Appropriation Account and pass the necessary Journal entry for apportionment of profit.
(Ans: Profit: A: ₹ 51,000, B: ₹ 45,000, C: ₹ 44,000)

57. A, B and C are partners sharing profits and losses in the ratio of A: 1/2, B: 3/10, C: 1/5 after providing
for interest @ 5% on their respective capitals of: A ₹ 50,000; B ₹ 30,000 and C ₹ 20,000 and allowing B
and C a salary of ₹ 5,000 each per annum. During the year ended 31st March, 2024, A has drawn ₹
10,000 and both B and C in addition to their salaries have drawn ₹ 2,500 and ₹ 1,000 respectively. The
Profit and Loss Account for the year ended 31st March, 2024 showed a net profit of ₹ 45,000 before
charging interest on capital and partners' salaries. On 1st April, 2023, the balances in the Current
Accounts of the partners were A (Cr.) ₹ 4,500; B (Cr.) ₹ 1,500 and C (Cr.) ₹ 1,000. Interest is not
charged on Drawings or Current Account balances. Show Partners Capital and Current Accounts as at
31st March, 2024 after division of profits in accordance with the partnership agreement.
(Ans: Share of Profit: A: ₹ 15,000; B: ₹ 9,000; C: ₹ 6,000; Balances in Current A/cs: A (Cr.)––₹ 12,000; B (Cr.)—
₹ 9,500; C (Cr.)—₹ 7,000)

58. A and B are partners sharing profits and losses in the ratio of 3:1. On 1st April, 2023, their capitals were:
A ₹ 50,000 and B ₹ 30,000. During the year ended 31st March, 2024 they earned a net profit of ₹
50,000. The terms of partnership are:
(a) Interest on capital is to be charged @ 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.
(Ans: Share of Profit: A: ₹ 23,714; B: ₹ 7,905; Capital A/c: A: ₹ 74,714; B: ₹ 41,286)

59. A, B and C are three partners. On 1st April, 2023, their Capitals stood as: A: ₹ 40,000, B: ₹ 30,000 and
C: ₹ 25,000. It was decided that:
(a) they would receive interest on Capital @ 5% p.a.,
(b) A would get a salary of ₹ 250 per month,
(c) B would receive commission @ 4% on the net profit after deduction of the commission from it
interest on capital and salary and
(d) After deducting all of these 10% of the profits should be transferred to the General Reserve.
Before the above items were taken into account, the profits for the year ended 31st March, 2024 were ₹
33,360. Prepare Profit and Loss Appropriation Account and the Capital Accounts of the Partners.
(Ans: Divisible Profit: ₹ 22,163; Commission: ₹ 985; General Reserve: ₹ 2,462; Closing Balance of Capitals: A: ₹
52,388; B: ₹ 39,873; C: ₹ 33,637)

CA Manish Mahajan
 P a g e | 19

Past Adjustments

60. R, M and N shared profits in the ratio of 3:2:1. The profits for the last three years were ₹ 1,40,000; ₹
84,000 and ₹ 1,06,000 respectively. These profits were by mistake shared equally for all the three years.
It is now decided to correct the error. Give necessary Journal entry for the same.
(Ans: Debit N's Capital A/c and Credit R's Capital A/c by ₹ 55,000)

61. Jain and Gupta were partners in a firm sharing profits in 3:2. Their fixed capitals were Jain ₹ 1,00,000
and Gupta ₹ 1,50,000. After the accounts of the year had been closed, it was discovered that interest on
capital @ 10% p.a. as provided in the partnership agreement has not been credited to the Capital
Accounts of the Partners before distribution of profits. Pass necessary Journal entry to rectify the error.
(Ans: Dr. Jain's Current A/c and Cr. Gupta's Current A/c by ₹ 5,000)

62. Profits earned by a partnership firm for the year ended 31st March, 2024 were distributed equally
between the partners—Akash and Anita—without allowing interest on capital (₹ 3,000 due to Akash
and ₹ 1,000 due to Anita).
Pass necessary adjustment entry/entries.
(Ans: Debit Anita's Capital A/c and Credit Akash's Capital A/c by ₹ 1,000)

63. Ram and Sohan are equal partners. Their capitals are ₹ 4,000 and ₹ 8,000 respectively. After the
accounts for the year are prepared it is discovered that interest @ 5% p.a. as provided in the partnership
agreement has not been credited before distribution of profits. It is decided to make an adjusting entry
in the beginning of the next year. Give necessary adjustment entry.
(Ans: Debit Ram and Credit Sohan by ₹ 100)

64. X and Y are partners in a firm. Their respective capital contributions are ₹ 10,00,000 and ₹ 5,00,000
and their profit- sharing ratio is 3:2. Immediately after the distribution of ₹ 2,00,000 as profit for the
year, the following two items have been ignored:
(i) Outstanding expenses of ₹ 15,000 and
(ii) Prepaid expenses of ₹ 3,000.
Pass an adjusting journal entry.
(Ans: Prepaid Expenses A/c Dr. ₹ 3,000, X’s Capital A/c Dr. ₹ 7,200, Y’s Capital A/c Dr. ₹ 4,800, Outstanding
Expenses A/c Cr. ₹ 15,000)

65. The 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 profits for the year ended 31st March, 2024. It was
subsequently noticed that 5% p.a. interest on capital and on drawings was not taken into account in
arriving at the net 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 profits 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.
(Ans: Partners' Capital Accounts: A: ₹ 3,98,790; B: ₹ 3,01,210; Opening Capital: A: ₹ 3,28,000; B: ₹ 2,56,000;
Interest on Capital: A: ₹ 16,400; B: ₹ 12,800; Interest on Drawings: A: ₹ 900; B: ₹ 450)

66. A and B are partners in a firm sharing profits and losses in the ratio of 3:2. The following is the Balance
Sheet of the Firm as on 31.3.2024
Liabilities ₹ Assets ₹
Capitals: A 60,000 Sundry Assets 80,000
B 20,000
80,000 80,000

CA Manish Mahajan
 P a g e | 20

The profits ₹ 30,000 for the year ended 31.03.2024 were divided between partners without allowing
interest on capital @ 12% p.a. and salary to A ₹ 1,000 per month. During the year A withdrew ₹ 10,000
and B ₹ 20,000. Pass the necessary adjustment journal entry and show your working clearly.
(Ans: B’s Capital A/c Dr. ₹ 5,280, A’s Capital A/c Cr. ₹ 5,280)

67. P, Q and R were partners in a firm sharing profits in the ratio of 1:2:2. After division of the profits for
the year ended 31st March, 2024, their capitals were: P: ₹ 1,50,000; Q: ₹ 1,80,000 and R: ₹ 2,10,000.
During the year, they withdrew ₹ 20,000 each. The profit for the year was ₹ 60,000. The Partnership
Deed provided that the interest on capital will be allowed @ 10% p.a. While preparing final accounts,
interest on partners' capitals was not allowed. You are required to calculate capital of P, Q and R as at
1st April, 2023 and pass necessary adjustment entry for providing interest on capital.
(Ans: Opening Capitals: P: ₹ 1,58,000; Q: ₹ 1,76,000; R: ₹ 2,06,000; Debit Q with ₹ 4,000; R with ₹ 1,000 and
Credit P with ₹ 5,000)

68. Sunil, Aman and Abhay are partners, the balances of their Capital Accounts being ₹ 30,000, ₹ 25,000
and ₹ 20,000 respectively. In arriving at these figures, the profits for the year ended 31st March, 2024, ₹
24,000 had already been credited to partners in the proportion in which they shared profits. Their
drawings were ₹ 5,000 (Sunil), ₹ 4,000 (Aman) and ₹ 3,000 (Abhay) during the year. Subsequently, the
following omissions were noticed and it was decided to bring them into account:
(a) Interest on capital @ 10% p.a.
(b) Interest on drawings: Sunil ₹ 250, Aman ₹ 200 and Abhay ₹ 150.
Make necessary corrections through a Journal entry.
(Ans: Debit Abhay by ₹ 550 and Credit Sunil by ₹ 550)

69. Ram, Mohan and Sohan sharing profits and losses equally have capitals of ₹ 1,20,000, ₹ 90,000 and ₹
60,000. For the year 2023, interest was credited to them @ 6% instead of 5%. Give adjustment Journal
entry.
(Ans: Debit Ram and Credit Sohan by ₹ 300)

70. Ram, Sham 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 2023, 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. Give necessary adjustment entry.
(Ans: Sham's Current A/c (Dr.) ₹ 200; Mohan's Current A/c (Dr.) ₹ 400; Ram's Current A/c (Cr.) ₹ 600)

71. Malti, Pari, and Arti are partners in a firm having fixed capitals of ₹ 80,000, ₹ 40,000 and ₹ 50,000
respectively sharing profits as 7:6:4. The rate of interest on capital was agreed at 10% per annum, but
was wrongly credited to them as 12% per annum. Give the necessary adjustment entry to adjust the
balances of partners’ Capital accounts.
(Ans. Dr. Malti’s Current A/c ₹ 200, Arti’s Current A/c ₹ 200, Cr. Pari’s Current A/c ₹ 400)

72. A, B and C were partners in a firm. On 1st April, 2023 their capitals stood at ₹ 50,000, ₹ 25,000 and ₹
25,000 respectively. As per the provision of the Partnership Deed:
(a) C was entitled for a salary of ₹ 1,500 per month,
(b) Partners were entitled to Interest on capital @ 5% p.a.
(c) Profits were to be shared in the ratio of capitals,
The net profit for the year 2023-24 of ₹ 45,000 was divided equally without providing for the above
terms.
Pass an adjustment entry to rectify the above error.
(Ans: A’s Capital A/c (Dr.) ₹ 1,500; B's Capital A/c (Dr.) ₹ 8,250; C’s Capital A/c (Cr.) ₹ 9,750)

73. On 31st March 2024, after the closing of the accounts, the Capital Accounts of P, Q and R stood in the
books of the firm at ₹ 40,000; ₹ 30,000 and ₹ 20,000 respectively. Subsequently, it was discovered that

CA Manish Mahajan
 P a g e | 21

interest on capital @ 5% had been omitted. Profit for the year ended 31st March, 2024 amounted to ₹
60,000 and the partners' drawings had been P—₹ 10,000, Q— ₹ 7,500 and R—₹ 4,500. The profit-
sharing ratio of P, O and R is 3:2:1. Give necessary adjustment entries.
(Ans: Debit P's Capital A/c ₹ 300 and credit Q's Capital A/c ₹ 8 and R's Capital A/c ₹ 292)

74. A, B and C were partners. Their capitals were A—₹ 30,000; B—₹ 20,000 and C—₹ 10,000 respectively.
According to the Partnership Deed, they were entitled to an interest on capital @ 5% p.a. In addition, B
was also entitled to draw a salary of ₹ 500 per month. C was entitled to a commission of 5% on the
profits after charging the interest on capital, but before charging the salary payable to B. The net profits
for the year were ₹ 30,000 distributed in the ratio of capitals without providing for any of the above
adjustments. The profits were to be shared in the ratio of 5:3:2. Pass necessary adjustment entry
showing the workings clearly.
(Ans: Debit A's Current A/c: ₹ 3,675; Credit B's Current A/c: ₹ 2,895; and C’s Current A/c: ₹ 780)

75. A, B and C are partners in a firm. Net profit of the firm for the year ended 31 st March, 2024 was ₹
30,000 which has been duly distributed among the partners, in their agreed ratio of 3:1:1 respectively. It
was subsequently discovered that the under mentioned transactions were not passed through the books
of accounts of the firm for the year ended 31st March, 2024:
(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) Partner’s Salaries: A ₹ 5,000; B ₹ 7,500.
(d) Commission due to A ₹ 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.
(Ans: Dr. A's Capital A/c: ₹ 2,520 and Cs Capital A/c: ₹ 2,740; Cr. B's Capital A/c: ₹ 5,260)

76. On 31st March 2024, the balances in the Capital Accounts of Sita, Gita and Mita after making
adjustments for profits and drawings, etc., were ₹ 80,000, ₹ 60,000 and ₹ 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, 2024 was ₹ 80,000.
(b) During the year Sita and Gita each withdrew a sum of ₹ 24,000 in equal installments in the end of
each month and Mita 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.
Pass the necessary rectifying entry.
(Ans: Dr. Sita's Capital A/c: ₹ 2,350 and Gita's Capital A/c: ₹ 1,300; Cr. Mita's Capital A/c: ₹ 3,650)

Guarantee of Profit to a Partner

77. A, B and C were in partnership sharing profits and losses in the ratio of 4:2:1 respectively. It was
provided that in no case C’s share in profits should be less than ₹ 7,500. The profits for the year 2023-24
amounted to ₹ 31,500. You are required to show the appropriation among the partners.
(Ans: Share of Profit: A: ₹ 16,000; B: ₹ 8,000; C: ₹ 7,500)

78. A, B and C are partners in a firm. Their profit-sharing ratio is 2:2:1. However, C is guaranteed a
minimum amount of ₹ 10,000 as share of profits every year. Any deficiency arising on that amount
shall be met by B. The profits for the two years ended 31st March, 2023 and 2024 were ₹ 40,000 and ₹
60,000 respectively. Prepare Profit and Loss Appropriation Account for the two years.
(Ans: Deficiency to be borne by B: 2023—₹ 2,000; 2024—Nil)

79. A, B and C are partners sharing profits in the ratio of 5:4:1. C is given a guarantee that his minimum
share of profits in any given year would be ₹ 5,000. Deficiency, if any, would be borne by A and B

CA Manish Mahajan
 P a g e | 22

equally. The profits for the year 2023-24 amounted to ₹ 40,000.

(Ans: Deficiency of C: ₹ 1,000 borne by A and B equally)

80. A, B and C entered into partnership on 1st April, 2023 to share profits and losses in the ratio of 5:3:2. A
guaranteed that C’s share of profits, after charging interest on capital @ 5% p.a., would not be less than
₹ 15,000 in any year. The capitals were provided as follows: A—₹ 1,60,000; B—₹ 1,00,000 and C—₹
80,000. The profits for the year ended 31st March, 2024 amounted to ₹ 79,500 before providing for
interest on capital. Show Profit and Loss Appropriation Account.
(Ans: Share of Profit: A: ₹ 28,750; B: ₹ 18,750; C: ₹ 15,000)

81. A, B and C entered into a partnership on 1st Oct 2023 to share profits and losses in the ratio of 3:2:1. A,
however, personally guaranteed that C’s share of profit would not be less than ₹ 30,000 p.a. The loss for
the period ended 31st March, 2024 were ₹ 2,10,000. Calculate Deficiency to be charged to A.
(Ans: Deficiency ₹ 50,000 to be borne by A)

82. A, B and C are partners in a firm sharing profits in the ratio of 3:2:1. They earned a profit of ₹ 30,000
during 2023-24. Distribute profit among A, B and C if:
(a) C’s share of profit is guaranteed to be ₹ 6,000 minimum.
(b) Minimum profit payable to C amounting to ₹ 6,000 is guaranteed by A.
(c) Guaranteed minimum profit of ₹ 6,000 payable to C is guaranteed by B.
(d) Any deficiency after making payment of guaranteed ₹ 6,000 will be borne by A and B in the ratio of
3:1.
(Ans: (a) A: ₹ 14,400; B: ₹ 9,600; C: ₹ 6,000, (b) A: ₹ 14,000; B: ₹ 10,000; C: ₹ 6,000, (c) A: ₹ 15,000; B: ₹ 9,000;
C: ₹ 6,000, (d) A: ₹ 14,250; B: ₹ 9,750; C: ₹ 6,000)

83. The partners of a firm distributed the profits for the year ended 31st March, 2024, ₹ 60,000 in the ratio
of 3:2:1 without providing for the following adjustments:
(i) A & B were entitled to a salary of ₹ 1,500 per annum
(ii) B was entitled to a commission of ₹ 4,500.
(iii) B & C had guaranteed a minimum profit of ₹ 25,000 p.a. to A.
(iv) Profits were to be shared in the ratio of 3:3:2.
Pass necessary journal entry for the above adjustment in the books of the firm.
(Ans: A's Capital A/c Dr. ₹ 3,500; B's Capital A/c Cr. ₹ 2,500 and C's Capital A/c Cr. ₹ 1,000)

84. B, C and D are partners in a firm. Their Capital Accounts stood at ₹ 6,00,000; ₹ 5,00,000 and ₹
4,00,000 respectively on 1st April, 2023. They shared Profits and Losses in the proportion of 4:2:3.
Partners are entitled to interest on capital @ 8% per annum and salary to C and D @ ₹ 7,000 per month
and ₹ 10,000 per quarter respectively as per the provision of the Partnership Deed. D's share of profit
(excluding interest on capital but including salary) is guaranteed at a minimum of ₹ 1,10,000 p.a. Any
deficiency arising on that account shall be met by B. The profits for the year ended 31 st March, 2024
amounted to ₹ 4,24,000. Prepare Profit and Loss Appropriation Account for the year ended 31st March,
2024.
(Ans: Share of Profit: B: ₹ 70,000; C: ₹ 40,000 and D: ₹ 70,000)

85. Three Doctors A, B and C form a partnership, profits being divisible in the ratio of 3:2:1 subject to the
following:
(a) C’s share of profits guaranteed to be not less than ₹ 15,000 p.a.
(b) B gives a guarantee to the effect that gross fee earned by him for the firm shall be equal to his
average gross fee of the preceding five years when he was carrying on profession alone, which on
an average works out at ₹ 25,000.
The profits for the first year of the partnership are ₹ 75,000. The gross fee earned by B for the firm is ₹
16,000. Show Profit & Loss Appropriation Account.
(Ans: A's share: ₹ 41,400; B's share: ₹ 18,600; C’s share: ₹ 15,000)

CA Manish Mahajan
 P a g e | 23

86. X, Y and Z entered into partnership on 1st October, 2023 to share profits and losses in the ratio of 4:3:3.
X, however, personally guaranteed that Z's share of profit after charging interest on capital @ 10% p.a.
would not be less than ₹ 80,000 in any year. The capital contributions were: X—₹ 3,00,000, Y—₹
2,00,000 and Z—₹ 1,50,000. The profit for the year ended 31st March, 2024 amounted to ₹ 1,60,000.
Prepare Profit and Loss Appropriation Account.
(Ans: Share of Profit: X: ₹ 49,250; Y: ₹ 38,250; Z: ₹ 40,000)

CA Manish Mahajan