CHAPTER 1 –ACCOUNTING FOR PARTNERSHIP: FUNDAMENTALS

CASE STUDY BASED QUESTIONS

Arav and Bhart are partners in a firm sharing profits and losses. Their capitals on 1
April, 2015 were Rs.4,80,000 and Rs.5,40,000. On 1 October, 2015, they decided that
the total capital of the firm should be Rs.10,00,000 to be contributed equally by both
of them. According to the Partnerhip Deed, interest on capital is allowed to the
partners @6% p.a.
1. You are required to compute interest on capital for the year ending 31 March, 2016.
(A) Rs.29,400, Rs.31,200 (B) Rs.14,400, Rs.16,200
(C) Rs.15,000, Rs.15,000 (D) None of these
2. What would be the profit sharing ratio of Arun and Barun?
(A) 1 : 1 (B) 2 : 3
(C) 3 : 2 (D) 3 : 4
CASE STUDY 2
CASE Anu and Baatish started a new business in partnership and decided to share
STUDY 2 profits andlosses in the ratio of 3 : 1. They contributed Capitals of rs. 50,000 and
rs.30,000 respectively on April 1 , 2018 .Anu is a sleeping partner whereas Baatish
is a full time working partner.During the year ended 31st March, 2019 they earned
a net profit of rs. 50,000. The terms of partnership are:
(a) Interest on capital is to allowed @ 6% p.a.
(b) Anu will get a commission @ 2% on turnover.
(c) Baatish will get a salary of rs. 500 per month.
(d) Baatish will get commission of 5% on profits after deduction of all
expenses includingsuch commission.
Partners’ drawings for the year were: Anurs. 8,000 and Baatishrs. 6,000.
Turnover for theyear was rs. 3,00,000.
On the basis of the information given above , answer the following questions -
Q1. What will be Anu’sandBaatish’sCommission ?
A. Anurs.6,000 ,Baatish- rs.1,660 B. Anurs.30,000 ,Baatish- rs.1,660
B. Anurs.6,000 ,Baatish- rs.1,660 D. Anurs.6,000 ,Baatish- rs.1,581

Q2. How much share of profits will be given to Anu and Baatish?
A. Anurs.23714 , Baatishrs.7,905 B. Anurs.15809.5 ,Baatishrs. 15,809.5
C. Anurs.22,000 , Baatishrs.7,000 D. None of the above

Q3. What will be the balance in Partners’ Capital Account at the end of the year?
A. Anurs.74,000 ,Baatishrs. 43,000 B. Anurs.74,714 ,Baatishrs. 41,286
a. Anurs.74,147 ,Baatishrs. 41,826 D. Anurs.70,714 ,Baatishrs. 41,286

Q4. Baatish wants that his share in profits should be higher than Anu as he is
puttingmore efforts to carry on the business. Is he correct in saying so?
A. Yes B. No C. Can’t say D. May or may not be

1
CASE Rohit and Ronit are two partners into firm sharing profits equally. On 1st January
STUDY-3 2020, they decided to admit Ajay as a new partner into the firm for 1/5 th share.
Ajay brings 10,00,000 for his share to capital and premium of goodwill in cash.
Half goodwill is withdrawn by the old partners. Goodwill of the firm is valued on
the basis of one year purchase of profits or losses of preceding last 3 years.
Profits of last four years are
₹6,00,000 in 2016, ₹7,00,000 in 2017, ₹8,00,000 in 2018 and ₹15,00,000 in 2019.
1) Which of the following is a right of Ajay?
A. All of these B. Share profits of firm
C. Inspect books of accounts D. Share assets in the firm
2) What was the value of goodwill of the firm?
A. ₹9,00,000 B. ₹8,00,000
C. ₹7,00,000 D. ₹10,00,000
3) What was the amount of capital brought in by Ajay?
A. ₹22,00,000 B. ₹10,00,000
C. ₹8,00,000 D. Can't be determined
CASE Abhishek and Aishwarya were partners in a fast food corner. They sold fast food
STUDY 5 items across the counter and did home delivery too. For this purpose they
needed a delivery van, a few scooties and an additional person to support. Their
initial fixed capital contribution was 3,50,000 and 2,00,000 respectively.
Abhishek spends twice time that of Aishwarya to the business. He wants a salary
of Rs. 10,000 per month for extra time spend by him. Aishwarya has advanced
1,00,000 to the firm and want 6% interest per annum. They both have
withdrawn 20,000 from the business for personal use for which Abhishek was
asking to interest on drawing @ 5% to the business. They earned annual profit
of Rs. 2,00,000.
1.Interest on drawing charged to Abhishek and Aishwarya are :
A) 5% B) 6% C) 1000 each D) No interest on drawing will be charged
2. Profit shared by Abhishek and Aishwarya are :
A) 1,00,000 each B) Equally C) 50,000 each D) None of these
3.“Abhishek spends twice time that of Aishwarya to the business”, for
this purposeAbhishek will be given a salary of :
A) 10,000 per month B) Equal for both of them
C) No salary will be given D) 5,000 per month
4. “Aishwarya has advanced 1,00,000 to the firm and want 6% interest per
annum”,interest received by Aishwarya on advances will be :
A) 6,000 B) 7,000 C) 8,000 D) 9,000
CASE Amar, Akbar and Anthony entered into partnership business on 1st April 2020
STUDY 6 with capital of Rs 3,00,000 , 2,00,000 and 1,00,000 respectively. In addition to
capital Anthony has advanced a loan of rs 1,00,000. Since they were good
friends, they were not having any explicit agreement of partnership. Akbar has
worked hard to establish the business and Amar was looking after the office
work.
At the end of the year , they earned a profit of Rs. 1,80,000. Amar and Akbar
wanted remuneration of their work for five thousand per month and Anthony
ask for interest on advance @ 10% per annum. Since Amar has given maximum
capital so he wants interest on capital @12%. You are required to help them.

2
 1.What is amount of the profit distributed to Amar, Akbar and Anthony
respectively?
A) 50,000: 30,000: 20,0000 B) 80,000: 50,000: 20,0000
C) Profit will be distributed equally D) None of these
2. Interest on advance given by Anthony to firm is:
A) 6% B) 8% C) 12% D) 10%
3. Amar and Akbar will be given a remuneration of :
A) 5,000 per month each B) 10,000 per month each
C) No remuneration will be given D) Amar :5000 per month, Akbar :4000 per month
4. What will be the interest on capital given to Amar ?
A) 36,000 B) 46,000 C) 24,000 D) No interest on capital will be given
MCQ
Galib & Jakib are partners in a firm. Galib is to get commission of 10% of net profit before charging
any commission. Jakib is to get a commission of 10% on net profit after charging all commissions. Net
Profit for the year ended 31st March, 2021 was Rs 55,000. What will be amount of Profit to be
distributed to each?
(A) Rs. 5,500 to Galib& Rs. 4,500 to Jakib. (B) Rs. 27,500 each.
(C) Rs. 22,500 each. (D) None of the above

Shalu, Shan& Julie are partners sharing profits in the ratio of 6 : 4 : 1. Julie is guaranteed a minimum
profit of Rs. 20,000. The firm incurred a loss of Rs. 2,20,000 for the year ended 31st March, 2021. What
amount of deficiency will be borne by Shaluand Shan.
(A) Rs. 10,000 each. (B) Rs. 20,000 each.
(C) Rs. 24,000 by Shalu& Rs. 16,000 by Shan. (D) Rs. 12,000 by Shalu& Rs. 8,000 by Shan

Om& Prakash were partner’s without any deed where Prakash invested the total capital and Om had
the complete hold on the business as Prakash was the sleeping partner, but as Prakash invested complete
capital demanded to share the profits in the Ratio of 5 : 1 and Om object’s to this.
(A) Om’s objection is correct. (B) Prakash’s demand is correct.
(C) Both are wrong. (D) As investment is of Prakash he should be given interest on capital.

A partner withdrew Rs. 4,000 per month from 1st July, 2016, on beginning of every month. Accounts
are closed at 31st March, 2017. Calculate interest on drawings while rate of interest is 10% per annum.
(A) Rs. 1,600 (B) Rs. 1,800 (C) Rs. 1,500 (D) Rs. 2,200

A partner withdraws Rs.8,000 each on 1st April and 1st Oct. Interest on his drawings @ 6% p.a. on
31st March will be:
(A) Rs. 480 (B) Rs.720 (C) Rs. 240 (D) Rs. 960

1. Honest and Sincere are partners in a firm., having total capital of Rs.80,000 of which Rs.50,000 is of
Honest and balance is of Sincere on 1t April, 2017. As per the partnership deed they are to share
profits in capital ratio. Honest brought in additional capital of Rs.15,000 and Rs.20,000 on 1st
September,2017 and on 1st Jan.2018, respectively. Sincere introduced Rs.5,000 and Rs.6,000 on 1st
December, 2017 and 31st March 2018 respectively. Calculate capital ratio. The profit for the year
ended 31st March 2018 was Rs.68,700.
(Ans: Capital Ratio 153:76)
3
2. R, Sand Tare partners sharing profits and losses in proportion to their capitals in the beginning of
the year They are entitled to draw annually Rs.3,000, Rs.2,500 and Rs.2,000 respectively as out of
their anticipated share of profits. Any drawings in excess of these amounts are to be regarded as
advances taken from the firm and are to be subject to interest @18% p.a. the capital in the beginning
 of the year is to be allowed interest @ 15% p.a.

The capitals of the partners in the beginning of the year were R- Rs. 40,000; S- Rs.30,000 and T- Rs.
20,000. The credit balances of their current accounts were as R- Rs.1,152, S- Rs.1,864 and T- Rs.576
Their drawings during thecar were as R- Rs.7,000; S-Rs. 9,500 and T- Rs.3,000. The profit for the
year was Rs.30,420 before making any adjustment for interest as above.

Draw up the Profit and Loss appropriation account, Capital and Current accounts of the partners
for the year ended 31t March, 2018.
(Ans. Profit & Loss App ₹ 18,000; Current balance ₹ 7,792, ₹2,234, ₹ 4,486)

3. Rohit, Raman and Raina are partners in a firm. Their capital accounts on 1st April, 2019, stood at
₹2,00,000, ₹1,20,000 and ₹1,60,000 respectively. Each partner withdrew ₹15,000 during the financial
year 2019-20. As per the provisions of their partnership deed:
(a) Interest on capital was to be allowed @ 5% per annum.
(b) Interest on drawings was to be charged @ 4% per annum.
(c) Profits and losses were to be shared in the ratio 5:4:1. The net profit of ₹72,000 for the year ended
31st March 2020, was divided equally amongst the partners without providing for the terms of the
deed. You are required to pass a single adjustment entry to rectify the error.
(Ans: Raina’s Capital Dr. ₹ 11,410 & Rohit, Raman Capital Cr. ₹10,150, ₹ 1,260)

4. Amay, Anmol and Rohan entered into partnership on 1st July, 2021 to share profits and losses in the
ratio of 3:2:1. Amay guaranteed that Rohan’s share of profit after charging interest on capital @ 6%
p.a would not be less than ₹ 36,000 p.a. Their fixed capital balances are: ₹ 2,00,000, ₹ 1,00,000 and ₹
1,00,000 respectively. Profit for the year ended 31st March, 2022 was ₹1,38,000. Prepare Profit and
Loss Appropriation A/c.
(Ans: ₹ 53,000; ₹ 40,000; ₹ 27,000)