PRACTICE TEST

Topic: Profit & loss Appropriation A/c and Partners Capital A/c

Q.1. On 1st April, 2018 A and B commenced business with Capital of Rs. 6,00,000 and Rs. 2,00,000
respectively. On 31st March, 2019 the trading profit (before taking in account the provisions of deed) was Rs.
2,40,000. Interest on capital is be allowed at 6% p.a. B was entitled a salary of Rs. 60,000 p.a. The drawings of
the partners A and B were Rs. 60,000 and Rs. 40,000 respectively. The interest on Drawings for A being Rs.
2,000 and B Rs. 1,000. Assuming that A and B are equal partners, prepare the Profit and Loss Appropriation a/c
and Partner’s Capital Accounts as at 31st March, 2019.

Q.2. X and Y are partners with capitals of Rs. 1,00,000 and Rs. 80,000 respectively on 1 st April, 2020
and their profit-sharing ratio is 2:1. Interest on capital is agreed @ 12% p.a. Y is to be allowed an annual salary
of Rs. 6,000. The profit for the year ended 31 st March, 2021 amounted to Rs. 50,000. Manager is entitled to a
commission of 10% of the profits

Q.3. A and B are partners in a firm sharing profits or losses in the ratio of 2:3 with capital of Rs.
4,00,000 and Rs. 8,00,000 respectively on 1st April, 2020. Each partner is entitled 10% p.a. interest on his
capital. B is entitled a commission of 10% on net profit remaining after deducting interest on capital but before
charging any commission. A is entitled a commission of 8% on net profit remaining after deducting interest on
capital and after charging all commission. The profit for the year ended 31st March, 2021 prior calculation of
interest on capital was Rs. 6,00,000. Prepare Profit and Loss Appropriation Account.

Q.4 Y and Z are partners with capital of Rs. 25,000 and Rs. 15,000 respectively on 1 st April, 2020. Each
partner is entitled to 9% p.a. interest on his capital. Z is entitled to a salary of Rs. 6,000 p.a. together with a
commission of 6% of Net Profit remaining after deducting interest on capital and salary and after charging his
commission. The profit for the year ended 31 st March, 2021 before making any of the above-mentioned
adjustments amount to Rs. 30,800. Prepare Partner’s Capital Accounts: (i) when capitals are fixed, (ii) when
capital are fluctuating.

Q.5. A, B and C were partners in a firm having capitals of Rs. 2,00,000; Rs. 2,00,000 and Rs. 80,000
respectively on 1st April, 2020. Their Current Account balances were A: Rs. 20,000; B: Rs. 10,000 and C: Rs.
5,000 (Dr.). According to the partnership deed the partners were entitled to interest on capital @ 10% p.a. B
being the working partner was also entitled to a salary of Rs. 6,000 per quarter. The profit were to be divided as
follows:
(a) The first Rs. 60,000 in proportion to their capitals.
(b) Next Rs, 1,00,000 in the ratio of 4:3:1.
(c) Remaining profit to be shared equally. The firm made a profit of Rs. 2,80,000 for the year ended
31  March, 2021 before charging any of the above items. Prepare the Profit & Loss appropriation account and
st

pass necessary journal entry for appropriation of profit.

Q.6. A and B are partners sharing profit and loss in the ratio of their capitals which were Rs. 6,00,000
and Rs. 4,00,000 respectively on 1st April 2018. The partnership deed provides that:
(i) Both partners will get monthly salary of Rs. 20,000 each;
(ii) Interest on capital will be allowed @ 8% p.a.;
(iii) A will get a quarterly rent of Rs. 24,000 for the use of his property the firm.
On 1st July, 2018 A and B granted loans of Rs. 1,00,000 and Rs. 50,000 respectively the firm. During the year
ended 31st March 2019, the firm incurred a loss of Rs. 17,250 before any adjustment is made as per partnership
deed.

Q.7. X and Y are partners in a firm sharing profit and losses in the ratio of 3:2 with capitals of Rs.
10,00,000 and Rs. 5,00,000 respectively. As per the partnership deed they are to be allowed interest on capital
@ 8% p.a. The net profit for the year ended 31st March, 2021 before providing for interest on capital amounted
to Rs. 45,000. Show the distribution of profit.
******
 ANSWER KEY
PRACTICE TEST
Topic: Profit & loss Appropriation A/c and Partners Capital A/c

Q.1. On 1st April, 2018 A and B commenced business with Capital of Rs. 6,00,000 and Rs. 2,00,000
respectively. On 31st March, 2019 the trading profit (before taking in account the provisions of deed) was Rs.
2,40,000. Interest on capital is be allowed at 6% p.a. B was entitled a salary of Rs. 60,000 p.a. The drawings of
the partners A and B were Rs. 60,000 and Rs. 40,000 respectively. The interest on Drawings for A being Rs.
2,000 and B Rs. 1,000. Assuming that A and B are equal partners, prepare the Profit and Loss Appropriation a/c
and Partner’s Capital Accounts as at 31st March, 2019.

Solution

Working Note:-
Profit will be distributed in equal ratio = 1 : 1
A’s Profit = Rs. 1,35,000 ×1/2 = Rs. 67,500
B’s Profit = Rs. 1,35,000 ×1/2 = Rs. 67,500
Q.2. X and Y are partners with capitals of Rs. 1,00,000 and Rs. 80,000 respectively on 1 st April, 2020 and their
profit sharing ratio is 2:1. Interest on capital is agreed @ 12% p.a. Y is to be allowed an annual salary of Rs.
6,000. The profit for the year ended 31st March, 2021 amounted to Rs. 50,000. Manager is entitled to a
commission of 10% of the profits

Solution
PROFIT AND LOSS ACCOUNT
for the year ended 31st March, 2021

Working Note:-
1. Calculation of Manager’s Commission = Rs. 50,000 × 10% = Rs. 5,000
2. Calculation of Interest on Capital:-
X = Rs. 1,00,000 × 12% = Rs. 12,000
Y = Rs. 80,000 × 12% = Rs. 9,600
3. Profit distribution between partners:-
X’s Profit = Rs. 17,400 × 2/3 = Rs. 11,600
Y’s Profit = Rs. 17,400 × 1/3 = Rs. 5,800
Q.3. A and B are partners in a firm sharing profits or losses in the ratio of 2:3 with capital of Rs. 4,00,000 and
Rs. 8,00,000 respectively on 1st April, 2020. Each partner is entitled 10% p.a. interest on his capital. B is
entitled a commission of 10% on net profit remaining after deducting interest on capital but before charging any
commission. A is entitled a commission of 8% on net profit remaining after deducting interest on capital and
after charging all commission. The profit for the year ended 31st March, 2021 prior calculation of interest on
capital was Rs. 6,00,000. Prepare Profit and Loss Appropriation Account.
Solution

PROFIT AND LOSS APPROPRIATION ACCOUNT

for the year ended 31st March, 2020

Working Note:-
Calculation of Partner’s Commission:-
Profit after charging Interest on capital = Rs. 6,00,000 – Rs. 1,20,000 = Rs. 4,80,000
B’s Commission = Rs. 4,80,000 × 10/100 = Rs. 48,000
Profit after charging Interest on capital and B’s Commission = Rs. 6,00,000 – Rs. 1,20,000 – Rs. 48,000
Profit after charging Interest on capital and B’s Commission = Rs. 4,32,000
A’s Commission (after charging B’s commission own commission) = Rs. 4,32,000 × 8/108 = Rs. 32,000
Q.4 Y and Z are partners with capital of Rs. 25,000 and Rs. 15,000 respectively on 1 st April, 2020. Each partner
is entitled to 9% p.a. interest on his capital. Z is entitled to a salary of Rs. 6,000 p.a. together with a commission
of 6% of Net Profit remaining after deducting interest on capital and salary and after charging his commission.
The profit for the year ended 31st March, 2021 before making any of the above mentioned adjustments amount
to Rs. 30,800.
Prepare Partner’s Capital Accounts: (i) when capitals are fixed, (ii) when capital are fluctuating.

Solution                                            
PROFIT AND LOSS APPROPRIATION ACCOUNT
                                                     for the year ended 31st March, 2021

Working Note:–
1. Calculation of Commission:-
Y’s Commission = Rs. 21,200 × 6/106 = Rs. 1,200
Z’s Commission = Rs. 21,200 × 6/106 = Rs. 1,200
2. Profit distribution between partners:-
Y’s Profit = Rs. 20,000 × 1/2 = Rs. 10,000
Z’s Profit = Rs. 20,000 × 1/2 = Rs. 10, 000
Q.5. A, B and C were partners in a firm having capitals of Rs. 2,00,000; Rs. 2,00,000 and Rs. 80,000
respectively on 1st April, 2020. Their Current Account balances were A: Rs. 20,000; B: Rs. 10,000 and C: Rs.
5,000 (Dr.). According to the partnership deed the partners were entitled to interest on capital @ 10% p.a. B
being the working partner was also entitled to a salary of Rs. 6,000 per quarter. The profit were to be divided as
follows:
(a) The first Rs. 60,000 in proportion to their capitals.
(b) Next Rs, 1,00,000 in the ratio of 4:3:1.
(c) Remaining profit to be shared equally. The firm made a profit of Rs. 2,80,000 for the year ended 31st March,
2021 before charging any of the above items. Prepare the Profit & Loss appropriation account and pass
necessary journal entry for appropriation of profit.

Solution                                         
PROFIT AND LOSS APPROPRIATION ACCOUNT
for the year ended 31st March, 2021

Working Note:-
1. Calculation of Interest on Capital:-
A = Rs. 2,00,000 × 10% = Rs. 20,000
B = Rs. 2,00,000 × 10% = Rs. 20,000
C = Rs. 80,000 × 10% = Rs. 8,000
2. Calculation of Profit and Loss:-
Capital Ratio = 2,00,000 : 2,00,000 : 80,000
Capital Ratio = 5 : 5 : 2
Profit = 2,80,000 – 48,000 – Rs. 24,000
Profit = 2,08,000
Q.6. A and B are partners sharing profit and loss in the ratio of their capitals which were Rs. 6,00,000 and Rs.
4,00,000 respectively on 1st April 2018. The partnership deed provides that:
(i) Both partners will get monthly salary of Rs. 20,000 each;
(ii) Interest on capital will be allowed @ 8% p.a.;
(iii) A will get a quarterly rent of Rs. 24,000 for the use of his property the firm.
On 1st July, 2018 A and B granted loans of Rs. 1,00,000 and Rs. 50,000 respectively the firm. During the year
ended 31st March 2019, the firm incurred a loss of Rs. 17,250 before any adjustment is made as per partnership
deed.
Solution

Working Note:-
Calculation of Interest in Loan:-
A = 1,00,000 × 6/100 × 9/12 = Rs. 4,500
B = 50,000 × 6/100 × 9/12 = Rs. 2,250

Q.7. X and Y are partners in a firm sharing profit and losses in the ratio of 3:2 with capitals of Rs. 10,00,000
and Rs. 5,00,000 respectively. As per the partnership deed they are to be allowed interest on capital @ 8% p.a.
The net profit for the year ended 31st March, 2021 before providing for interest on capital amounted to Rs.
45,000. Show the distribution of profit.

Solution
PROFIT AND LOSS APPROPRIATION ACCOUNT
                                                for the year ended 31st March, 2021

Working Note:-
Calculation of Interest on Capital:-
A = 10,00,000 × 8/100 = Rs. 80,000
B = 5,00,000 × 8/100 = Rs. 40,000
Total profit needed = Rs. 80,000 + Rs. 40,000 = Rs. 1,20,000
Available profit = Rs. 45,000 which is less than appropriations Rs. 1,20,000. Profit will be distributed in the
ratio of appropriations in interest on capital 80,000 : 40,000 = 2 : 1.
A’s share = 45,000 × 2/3 = 30,000
B’s share = 45,000 × 1/3 = 15,000
 PRACTICE TEST
Topic: Interest on Drawings
Q.1. Gopal is a partner in a firm. He withdrew Rs. 1,000 p.m. regularly on the first day of every month during the
year ended 31st March, 2018 for personal expenses. If interest on drawings is charged @ 15% p.a. calculate the
interest on the drawings of Gopal.

Q.2. X, Y and Z are partners in a firm. You are informed that

(i) X draws Rs. 4,000 from the firm at the beginning of every month, (ii) Y draws Rs. 4,000 from the firma the end
of every month, and (iii) Z draws Rs. 4,000 from the firm in the middle of every month. Interest on drawings is be
charged @ 9% p.a. Calculate interest on partner’s drawings.

Q.3 Calculate the interest on drawings of Mr. Aditya @ 8% p.a. for the year ended 31st March, 2021, in each of the
following alternative cases:
Case (i) If he withdrew Rs. 5,000 in the beginning of each quarter.
Case (ii) If he withdrew Rs. 6,000 at the end of the each quarter.
Case (iii) If he withdrew Rs. 10,000 during the middle of each quarter.

Q.4 Calculate the interest on drawings of Sh. Ganesh @ 9% p.a. for the year ended 31st March, 2021 in each of the
following alternative cases:
Case (i) If he withdrew Rs. 4,000 p.m. in the beginning of every month;
Case (ii) If he withdrew Rs. 5,000 p.m. at the end of every month;
Case (iii) If he withdrew Rs. 6,000 p.m.;
Case (iv) If he withdrew Rs. 72,000 during the year;
Case (v) If he withdrew as follows:
30th April, 2020 10,000
1st July, 2020 15,000
1st Oct, 2020 18,000
30th Nov., 2020 12,000
31st March, 2021 20,000
Case (vi) If he withdrew Rs. 12,000 in the beginning of each quarter;
Case (vii) If he withdrew Rs. 18,000 at the end of each quarter;
Case (viii) If he withdrew Rs. 18,000 during the middle of each quarter.

Q.5. Gupta is a partner in a firm. He drew regularly Rs. 800 at the beginning of every month for the six months
ending 31st March, 2018. Calculate interest on drawings at 15% p.a.

Q.6. Gupta is a partner in a firm. He drew regularly Rs. 800 at the end of every month for the six months ending 31st
March, 2018. Calculate interest on drawings at 15% p.a.

Q.7 A, B and C are partners in a firm. For six months ending 31st March, 2018:
A drew regularly Rs. 15,000 in the beginning of every month.
B drew regularly Rs. 20,000 at the end of every month and
C drew regularly Rs. 25,000 in the middle of every month.
Calculate interest on drawings @ 10% p.a. for six months ending 31st March, 2018

Question.8.  A, B and C started business on 1st July, 2020. Calculate interest on drawings of Mr. A @ 9% p.a. for
nine months ending 31st March, 2021, if he withdrew Rs. 10,000 p.m. in the beginning of every month.

Question. 9. A, B and C started business on 1st July, 2020. Calculate interest on drawings of Mr. B @ 9% p.a. for
nine months ending 31st March, 2021, if he withdrew Rs. 10,000 p.m. at the end of every month.

Question. 10. A, B and C started business on 1st July, 2020. Calculate interest on drawings of Mr. C @ 9% p.a. for
nine months ending 31st March, 2021, if he withdrew Rs. 10,000 p.m.
Q. 10.B.. Calculate interest on A’s drawings:
(i) If he has withdrawn Rs. 60,000 on 1st October, 2020 and rate of interest on drawings is 8% p.a.
(ii) If he has withdrawn Rs. 6,000 on 1st October, 2020 and rate of interest on drawings is 8%.
Books are closed on 31st March, 2021.
 ANSWER KEY
TOPIC: INTEREST ON DRAWINGS
Q.1. Gopal is a partner in a firm. He withdrew Rs. 1,000 p.m. regularly on the first day of every month during
the year ended 31st March, 2018 for personal expenses. If interest on drawings is charged @ 15% p.a. calculate
the interest on the drawings of Gopal.
Solution
Gopal withdrew Rs. 1,000 p.m. regularly on the first day of every month during the year ended 31st March,
2014 for personal expenses. His interest on drawings will be calculated as follows:
Calculation of Interest on Drawings:-
Interest on Drawings = Rs.12,000 × 15/100 × 6.5/12
Interest on Drawings = Rs. 975

Q.2. X, Y and Z are partners in a firm. You are informed that

(i) X draws Rs. 4,000 from the firm at the beginning of every month, (ii) Y draws Rs. 4,000 from the firma the
end of every month, and (iii) Z draws Rs. 4,000 from the firm in the middle of every month. Interest on
drawings is be charged @ 9% p.a. Calculate interest on partner’s drawings.
Solution

(i) Calculation of Interest on Drawings:- Interest on Drawings = Rs. 1,980

Interest on Drawings = Rs.48,000 × 9/100 × 6.5/12 (iii) Calculation of Interest on Drawings:-
Interest on Drawings = Rs. 2,340 Interest on Drawings = Rs.48,000 × 9/100 × 6/12
(ii) Calculation of Interest on Drawings:- Interest on Drawings = Rs. 2,160
Interest on Drawings = Rs.48,000 × 9/100 × 5.5/12

Q.3 Calculate the interest on drawings of Mr. Aditya @ 8% p.a. for the year ended 31st March, 2021, in
each of the following alternative cases:
Case (i) If he withdrew Rs. 5,000 in the beginning of each quarter.
Case (ii) If he withdrew Rs. 6,000 at the end of the each quarter.
Case (iii) If he withdrew Rs. 10,000 during the middle of each quarter.
Solution
Case (i) Average Period = (9 months)/2 = 4.5 months
Total Drawings for the year = Rs. 5,000 × 4 = Rs. Calculation of Interest on Drawings:-
20,000 Interest on Drawings = Rs. 24,000 × 8/100 × 4.5/12
Period = 12 months + 3 months = 15 months Interest on Drawings = Rs. 720
Average Period = (15 months)/2 = 7.5 months Case (iii)
Calculation of Interest on Drawings:- Total Drawings for the year = Rs. 10,000 × 4 = Rs.
Interest on Drawings = Rs. 20,000 × 8/100 × 7.5/12 40,000
Interest on Drawings = Rs. 1,000 Period = 10.5 months + 1.5 months = 12 months
Case (ii) Average Period = (12 months)/2 = 6 months
Total Drawings for the year = Rs. 6,000 × 4 = Rs. Calculation of Interest on Drawings:-
24,000 Interest on Drawings = Rs. 40,000 × 8/100 × 6/12
Period = 12 months Interest on Drawings = Rs. 1,600

Q.4 Calculate the interest on drawings of Sh. Ganesh @ 9% p.a. for the year ended 31st March, 2021 in
each of the following alternative cases:
Case (i) If he withdrew Rs. 4,000 p.m. in the beginning of every month;
Case (ii) If he withdrew Rs. 5,000 p.m. at the end of every month;
Case (iii) If he withdrew Rs. 6,000 p.m.;
Case (iv) If he withdrew Rs. 72,000 during the year;
Case (v) If he withdrew as follows:
30th April, 2020 10,000
1st July, 2020 15,000
1st Oct, 2020 18,000
30th Nov., 2020 12,000
31st March, 2021 20,000
Case (vi) If he withdrew Rs. 12,000 in the beginning of each quarter;
Case (vii) If he withdrew Rs. 18,000 at the end of each quarter;
Case (viii) If he withdrew Rs. 18,000 during the middle of each quarter.
Solution
Case (i)
Period = 12 months + 1 months = 13 months
Average Period = (13 months)/2 = 6.5 months
Calculation of Interest on Drawings:-
Interest on Drawings = Rs. 48,000 × 9/100 × 6.5/12
Interest on Drawings = Rs. 2,340
Case (ii)
Period = 11 months
Average Period = (11 months)/2 = 5.5 months
Calculation of Interest on Drawings:-
Interest on Drawings = Rs. 60,000 × 9/100 × 5.5/12
Interest on Drawings = Rs. 2,475
Case (iii) Assuming that the drawings were made in
the middle of every month:-
Period = 11.5 months + 0.5 months = 12 months
Average Period = (12 months)/2 = 6 months
Calculation of Interest on Drawings:-
Interest on Drawings = Rs. 72,000 × 9/100 × 6/12
Interest on Drawings = Rs. 3,240
Calculation of Interest on Drawings:-
Interest on Drawings = Rs. 4,01,000 × 9/100 × 1/12
Interest on Drawings = Rs. 3,008
Case (vi)
Period = 12 months + 3 months = 15 months
Average Period = (15 months)/2 = 7.5 months
Total Drawings for the year = 12,000 × 4 = Rs.
48,000
Calculation of Interest on Drawings:-
Interest on Drawings = Rs. 48,000 × 9/100 × 7.5/12
Interest on Drawings = Rs. 2,700
Case (vii)
Period = 9 months
Average Period = (9 months)/2 = 4.5 months
Total Drawings for the year = 18,000 × 4 = Rs.
72,000
Calculation of Interest on Drawings:-
Interest on Drawings = Rs. 72,000 × 9/100 × 4.5/12
Interest on Drawings = Rs. 2,430

Case (iv) Calculated for an average period of 6 Case (viii)

months:
Calculation of Interest on Drawings:-
Interest on Drawings = Rs. 72,000 × 9/100 × 6/12
Interest on Drawings = Rs. 3,240
Case (v)
Period = 10.5 months + 1.5 months = 12 months
Average Period = (12 months)/2 = 6 months
Total Drawings for the year = 18,000 × 4 = Rs.
72,000
Calculation of Interest on Drawings:-
Interest on Drawings = Rs. 72,000 × 9/100 × 6/12
Interest on Drawings = Rs. 3,240

Q.5. Gupta is a partner in a firm. He drew regularly Rs. 800 at the beginning of every month for the six
months ending 31st March, 2018. Calculate interest on drawings at 15% p.a.
Solution
Gupta drew Rs. 800 at the beginning of every month for the six months ending 30th September, 2018. Hence,
his drawings for the period of six months would be:
Period = 6 months + 1 months = 7 months
Average Period = (7 months)/2 = 3.5 months
Total Drawings for the year = 800 × 4 = Rs. 4,800
Calculation of Interest on Drawings:-
Interest on Drawings = Rs. 4,800 × 15/100 × 3.5/12
Interest on Drawings = Rs. 210

Q.6. Gupta is a partner in a firm. He drew regularly Rs. 800 at the end of every month for the six months
ending 31st March, 2018. Calculate interest on drawings at 15% p.a.
Solution
Gupta withdraws Rs. 800 at the end of every month for the six months ending 30th September, 2013.
Total drawings = 6 x Rs. 800 = Rs. 4,800
(Time left after first drawing + Time left after last drawing)/2
= (5 + 0)/2 = 2.5 months.
Rs. 4,800 x 15/100 x 2.5/12 = Rs. 150

Q.7 A, B and C are partners in a firm. For six months ending 31st March, 2018: A drew regularly Rs.
15,000 in the beginning of every month. B drew regularly Rs. 20,000 at the end of every month and C
drew regularly Rs. 25,000 in the middle of every month. Calculate interest on drawings @ 10% p.a. for
six months ending 31st March, 2018

Solution
Total Drawings of A = Rs. 15,000 x 6 = Rs. 90,000
Total Drawings of B = Rs. 20,000 x 6 = Rs. 1,20,000
Total Drawings of C = Rs. 25,000 x 6 = Rs. 1,50,000

Question.8.  A, B and C started business on 1st July, 2020. Calculate interest on drawings of Mr. A @
9% p.a. for nine months ending 31st March, 2021, if he withdrew Rs. 10,000 p.m. in the beginning of
every month.
Solution
Total Drawings = 9 × Rs. 10,000 = Rs. 90,000
Average Period = (9 months+1 month)/2
Average Period = 10/2
Average Period = 5 months
Interest on drawings = Rs. 90,000 × 9/100 × 5/12 = Rs. 3,375

Question. 9. A, B and C started business on 1st July, 2020. Calculate interest on drawings of Mr. B @
9% p.a. for nine months ending 31st March, 2021, if he withdrew Rs. 10,000 p.m. at the end of every
month.
Solution
Total Drawings = 9 × Rs. 10,000 = Rs. 90,000
Average Period = (8 months+0 month)/2
Average Period = 8/2
Average Period = 4 months
Interest on drawings = Rs. 90,000 × 9/100 × 4/12 = Rs. 2,700

Question. 10.A. A, B and C started business on 1st July, 2020. Calculate interest on drawings of Mr.
C @ 9% p.a. for nine months ending 31st March, 2021, if he withdrew Rs. 10,000 p.m.
Solution
Total Drawings = 9 × Rs. 10,000 = Rs. 90,000
Average Period = (8.5 months+0.5 month)/2
Average Period = 9/2
Average Period = 4.5 months
Interest on drawings = Rs. 90,000 × 9/100 × 4.5/12 = Rs. 3,038

Q. 10.B.. Calculate interest on A’s drawings:

(i) If he has withdrawn Rs. 60,000 on 1st October, 2020 and rate of interest on drawings is 8% p.a.
(ii) If he has withdrawn Rs. 6,000 on 1st October, 2020 and rate of interest on drawings is 8%.
Books are closed on 31st March, 2021.
Solution
Case (i) Interest on Drawings = Rs. 60,000 × 8/100 × 6/12 Interest on Drawings = Rs. 2,400
Case (ii) Calculation for 12 months Interest on Drawings:
Interest on Drawings = Rs. 60,000 × 8/100 Interest on Drawings = Rs. 4,800
 PRACTISE QUESTIONS
Topic: INTEREST ON CAPITAL

Q. 1 X and Y are partners sharing the profits and losses in the ratio 2:1 with capitals of Rs. 50,000 and Rs.
30,000 respectively. Show the distribution of profits in each of the following alternative cases:
(i) If the partnership deed is silent as the Interest on Capital and the profits for the year are Rs. 9,000.
(ii) If the partnership deed provides for Interest on Capital @ 6% p.a. and the losses for the year are Rs. 6,000.
(iii) If the partnership deed provides for Interest on Capital @ 6% p.a. and the profits for the year are Rs. 9,000.
(iv) If the partnership deed provides for Interest on Capital @ 6% p.a. and the profits for the year are Rs. 3,000.
(v) If the partnership deed provides for Interest on Capital @ 6% p.a. even if it involves the firm in loss and the
profits for the year are Rs. 3,000.

Q.2. A and B contribute Rs. 4,00,000 and Rs. 3,00,000 respectively as their capitals. They decide allow
interest on capital @ 8% p.a. Their respective share of profit is 3:2 and the profit for the year is Rs. 42,000
before allowing for interest on capitals. Show the 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 loses.

Q.3. P and Q were partners in a firm sharing profits in 3:1 ratio. Their respective fixed capitals were Rs.
10,00,000 and Rs. 6,00,000. The partnership deed provided interest on capital @ 12% p.a. The Partnership deed
further provided that interest on capital will be allowed fully even if it will result ina loss the firm. The net
profit of the firm for the year ended 31st March, 2018 was Rs. 1,50,000.
Pass necessary journal entries in the books of the firm allowing interest on capital and division of profit/loss
among the partners.

 Q.4 Lalan and Balan were partners in a firm sharing in the ratio of 3:2. Their fixed capitals on 1st April,
2017 were: Lalan Rs. 1,00,000 and Balan Rs. 2,00,000. They agreed allow interest on capital @ 12% per
annum and change on drawings @ 15% per annum. The firm earned a profit, before all above adjustments of
Rs. 30,000 for the year ended 31st March, 2018. The drawings of Lalan and Balan during the year were Rs.
3,000 and Rs. 5,000 respectively. Showing you calculations clearly, prepare Profit and Loss Appropriation
Account of Lalan and Balan. The interest on capital will be allowed even if the firm incurs a loss.
 ANSWER KEY
TOPIC: Interest On Capital

Q. 1 X and Y are partners sharing the profits and losses in the ratio 2:1 with capitals of Rs. 50,000 and Rs.
30,000 respectively. Show the distribution of profits in each of the following alternative cases:
(i) If the partnership deed is silent as the Interest on Capital and the profits for the year are Rs. 9,000.
(ii) If the partnership deed provides for Interest on Capital @ 6% p.a. and the losses for the year are Rs. 6,000.
(iii) If the partnership deed provides for Interest on Capital @ 6% p.a. and the profits for the year are Rs. 9,000.
(iv) If the partnership deed provides for Interest on Capital @ 6% p.a. and the profits for the year are Rs. 3,000.
(v) If the partnership deed provides for Interest on Capital @ 6% p.a. even if it involves the firm in loss and the
profits for the year are Rs. 3,000.
Solution
Case (i)

Working Note:-
In case of loss we cannot pay Interest on capital.
Profit and Loss Appropriation (Distribution of Loss):-
X’s Share = 6,000 × 2/3 = 4,000
Y’s Share = 6,000 × 1/3 = 2,000
Case (iii)

Working Note:-
Calculation of Interest on Capital:-
X’s Interest on Capital = 50,000 × 6% = 3,000
Y’s Interest on Capital = 30,000 × 6% = 1,800
Profit and Loss Appropriation (Distribution of Profit):-
X’s Share = 4,200 × 2/3 = 2,800
Y’s Share = 4,200 × 1/3 = 1,400
Case (iv)
Working Note:-
The profit is Rs. 3,000 whereas Interest on capital is Rs. 4,800. So the expenses divided intheir expenses
ratio which is 3,000 : 1,800 or 5 : 3
Calculation of Interest on Capital:-
X’s Interest on Capital = 3,000 × 5/8 = 1,875
Y’s Interest on Capital = 3,000 × 3/8 = 1,125
Case (v)

Q.2. A and B contribute Rs. 4,00,000 and Rs. 3,00,000 respectively as their capitals. They decide allow
interest on capital @ 8% p.a. Their respective share of profit is 3:2 and the profit for the year is Rs. 42,000
before allowing for interest on capitals. Show the 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 loses.
Solution
Case (i)

Working Note:-
Calculation of Interest on Capital:-
A’s Interest on Capital = 4,00,000 × 8% = 32,000
B’s Interest on Capital = 3,00,000 × 8% = 24,000
The profit is Rs. 42,000 whereas Interest on capital is Rs. 56,000. So the expenses divided intheir expenses ratio
which is 32,000 : 24,000 or 4 : 3
A’s Interest on Capital = Rs. 42,000 × 4/7 = Rs. 24,000
B’s Interest on Capital = Rs. 42,000 × 3/7 = Rs. 18,000
Case (ii)

Q.3. P and Q were partners in a firm sharing profits in 3:1 ratio. Their respective fixed capitals were Rs.
10,00,000 and Rs. 6,00,000. The partnership deed provided interest on capital @ 12% p.a. The Partnership deed
further provided that interest on capital will be allowed fully even if it will result ina loss the firm. The net
profit of the firm for the year ended 31st March, 2018 was Rs. 1,50,000.
Pass necessary journal entries in the books of the firm allowing interest on capital and division of profit/loss
among the partners.
Solution

Working Note:-
Calculation of Interest on Capital:-
P’s Interest on Capital = 10,00,000 × 12% = 1,20,000
Q’s Interest on Capital = 6,00,000 × 12% = 72,000
Profit and Loss Appropriation (Distribution of Loss):-
P’s Share = 42,000 × 3/4 = 31,500
Q’s Share = 42,000 × 1/4 = 10,500

 Q.4 Lalan and Balan were partners in a firm sharing in the ratio of 3:2. Their fixed capitals on 1st April,
2017 were: Lalan Rs. 1,00,000 and Balan Rs. 2,00,000. They agreed allow interest on capital @ 12% per
annum and change on drawings @ 15% per annum. The firm earned a profit, before all above adjustments of
Rs. 30,000 for the year ended 31st March, 2018. The drawings of Lalan and Balan during the year were Rs.
3,000 and Rs. 5,000 respectively. Showing you calculations clearly, prepare Profit and Loss Appropriation
Account of Lalan and Balan. The interest on capital will be allowed even if the firm incurs a loss.
Solution
 PRACTICE QUESTIONS
TOPIC: PAST ADJUSTMENTS
Q.1. After the accounts of the partnership have been drawn up and the books closed off, it is discovered that
interest on capitals @ 8% p.a. as provided in the partnership agreement has been omitted be recorded. Their capital
accounts at the beginning of the year stood as follows: A Rs. 8,00,000; B Rs. 4,00,000; C Rs. 3,00,000. Their profit
sharing ratio was 2 : 1 : 1. Instead of altering the Balance Sheet it is decided pass necessary adjusting entry at the
beginning of the next year. You are required give the necessary journal entry.
Q.2. A, B, C and D are partners sharing profits in 2:2:1:1. They distributed the profit for the year ending 31st
March, 2020, Rs. 9,00,000 without providing for the following:
(i) Salary A @ 15,000 per month.
(ii) Salary B and D @ Rs. 30,000 per quarter each partner.
Pass an adjustment entry.
Q.3 A, B and C are partners sharing profits and losses in the ratio of 1:2:3. They have omitted interest on capital
@ 8% p.a. for two years ended 31st March, 2016. Their fixed capitals were Rs. 4,00,000, Rs. 6,00,000 and Rs.
8,00,000 respectively. Pass the necessary adjusting entry.
Q.4 A, B and C are partners sharing profits and losses in the ratio of 5:3:1. After the final accounts have been
prepared, it was discovered, it was discovered that interest on drawings had not been taken inconsideration. The
interest on drawings of partners amounted A Rs. 8,000, B Rs. 6,000 and C Rs. 4,000. Given the necessary adjusting
journal entry.
Q.5. A, B and C are partners sharing profits and losses in 2:2:3:3 respectively. After the accounts of the year had
been closed, it was found that interest on drawings @ 6% per annum has not been taken inconsideration. The
drawings of the partners were: A Rs. 20,000; B Rs. 24,000; C Rs. 32,000 and D Rs. 44,000. Give the necessary
adjusting entry.
Q.6. Anil, Sunil and Sanjay have omitted interest on capitals for two years ended on 31st March, 2021. Their
fixed capitals in two years were Anil Rs. 8,00,000, Sunil Rs. 7,00,000 and Sanjay Rs. 3,00,000. Rate of interest on
capitals is 10% p.a. Their profit sharing ratios were in first year 4:3:2 and in second year 3:2:1. Give necessary
adjusting entry at the beginning of next year.
Q.7. On 1st April, 2020 the capitals of A and B were Rs. 4,00,000 and Rs. 2,00,000 respectively. They divided
profits in their capital ratio. Profit for the year ended 31st March, 2021 were Rs. 3,00,000 which have been duly
distributed among the partners, but the following transactions were not passed through the books:-
(a) Interest on Capitals @ 12% p.a.,
(b) Interest on Drawings A Rs. 12,000; B Rs. 10,000.
(c) Commission due to B Rs. 20,000 on special transaction.
(d) A is to be paid a salary of Rs. 50,000.
You are required to pass a journal entry on 10th April, 2016 which will not affect the Profit and Loss A/c of the firm
and at the same time will rectify the errors.
Q. 8. A, B and C were partners in a firm. On 1-4-2020 their capitals stood at Rs. 5,00,000, Rs. 2,50,000 and Rs.
2,50,000 respectively. As per the provisions of the partnership deed:
(a) C was entitled for a salary of Rs. 10,000 p.m.
(b) Partners were entitled to interest on capital at 5% p.a.
(c) Profits were to be shared in the ratios of capitals.
The net profit for the year ended 31.3.2021 of Rs. 3,30,000 was divided equally without providing for the above
terms. Pass an adjustment entry to rectify the above error.
Q.9. X, Y and Z are partners in a firm sharing profits and losses in the ratio 5:3:2. Their capitals (Fixed) are Rs.
2,00,000; Rs. 1,50,000; Rs. 1,25,000 respectively. For the year ended 31st March, 2018 interest on capital was
credited them @ 8% instead of 10%. Give adjusting journal entry.
Q. 10 The capitals of A, B and C stood at Rs. 20,000, Rs. 15,000 and Rs. 10,000 respectively after the necessary
adjustment in respect of drawings and net profits. Subsequently, it was discovered that interest on capital at 10% p.a.
and interest on drawings Rs. 130, Rs. 90 and Rs. 50 respectively have been ignored. Profit of the year already
adjusted was Rs. 10,000. Drawings of the partners were Rs. 1,000, Rs. 800 and Rs. 500 respectively. They share
profits and losses in the ratio of 2:1:1. Give necessary journal entry rectify the accounts.
 ANSWER KEY – PAST ADJUSTMENTS
Q.1. After the accounts of the partnership have been drawn up and the books closed off, it is discovered that
interest on capitals @ 8% p.a. as provided in the partnership agreement has been omitted be recorded. Their
capital accounts at the beginning of the year stood as follows: A Rs. 8,00,000; B Rs. 4,00,000; C Rs. 3,00,000.
Their profit sharing ratio was 2 : 1 : 1. Instead of altering the Balance Sheet it is decided pass necessary
adjusting entry at the beginning of the next year. You are required give the necessary journal entry.
Solution

Working Note:-
Calculation of Interest on Capital:-
A’s Interest on Capital = Rs. 8,00,000 × 8% = Rs. 64,000
B’s Interest on Capital = Rs. 4,00,000 × 8% = Rs. 32,000
C’s Interest on Capital = Rs. 3,00,000 × 8% = Rs. 24,000
Interest on capita is a expense for the firm but this is omitted recorded on the debit side of Profit and loss
appropriation a/c of the previous year. Hence, this is loss of Rs. 1,20,000 will be shared the partners in their
profit sharing ratio 2:1:1.
A = Rs. 1,20,000 × 2/4 = Rs. 60,000
B = Rs. 1,20,000 × 1/4 = Rs. 30,000
C = Rs. 1,20,000 × 1/4 = Rs. 30,000

Q.2. A, B, C and D are partners sharing profits in 2:2:1:1. They distributed the profit for the year ending 31st
March, 2020, Rs. 9,00,000 without providing for the following:
(i) Salary A @ 15,000 per month.
(ii) Salary B and D @ Rs. 30,000 per quarter each partner.
Pass an adjustment entry.
Solution

Working Note:-
Calculation of Profit:-
A = Rs. 9,00,000 × 2/6 = Rs. 3,00,000
B = Rs. 9,00,000 × 2/6 = Rs. 3,00,000
C = Rs. 9,00,000 × 1/6 = Rs. 1,50,000
D = Rs. 9,00,000 × 1/6 = Rs. 1,50,000
A’s Salary = Rs. 15,000 × 12 = 1,80,000
B’s Salary = Rs. 30,000 × 4 = 1,20,000
D’s Salary = Rs. 30,000 × 4 = 1,20,000
Remaining Profit = Rs. 9,00,000 – Rs. 1,80,000 – Rs. 1,20,00 – Rs. 1,20,000
Remaining Profit = Rs. 4,80,000
Calculation of Profit after the adjustment of Salary:-
A = Rs. 4,80,000 × 2/6 = Rs. 1,60,000
B = Rs. 4,80,000 × 2/6 = Rs. 1,60,000
C = Rs. 4,80,000 × 1/6 = Rs. 80,000
D = Rs. 4,80,000 × 1/6 = Rs. 80,000

Q.3 A, B and C are partners sharing profits and losses in the ratio of 1:2:3. They have omitted interest on
capital @ 8% p.a. for two years ended 31st March, 2016. Their fixed capitals were Rs. 4,00,000, Rs. 6,00,000
and Rs. 8,00,000 respectively. Pass the necessary adjusting entry.

Solution

Working Note:-
Calculation of Interest on Capital:-
A = Rs. 4,00,000 × 8% × 2 = Rs. 64,000
B = Rs. 6,00,000 × 8% × 2 = Rs. 96,000
C = Rs. 8,00,000 × 8% × 2 = Rs. 1,28,000
Total Expenses = Rs. 64,000 + Rs. 96,000 + Rs. 1,28,000 = Rs. 2,88,000
Interest on capital is the expense for the firm. Hence we should divide it in the given ratio.
A = Rs. 2,88,000 × 1/6 = Rs. 48,000
B = Rs. 2,88,000 × 2/6 = Rs. 96,000
C = Rs. 2,88,000 × 3/6 = Rs. 1,44,000

Q.4 A, B and C are partners sharing profits and losses in the ratio of 5:3:1. After the final accounts have
been prepared, it was discovered, it was discovered that interest on drawings had not been taken
inconsideration. The interest on drawings of partners amounted A Rs. 8,000, B Rs. 6,000 and C Rs. 4,000.
Given the necessary adjusting journal entry.

Solution

Working Note:-
Calculation of Interest on Capital:-
Distribution of Profit:-
A’s Profit = Rs. 18,000 × 5/9 = Rs. 10,000
B’s Profit = Rs. 18,000 × 3/9 = Rs. 6,000
C’s Profit = Rs. 18,000 × 1/9 = Rs. 2,000

Q.5. A, B and C are partners sharing profits and losses in 2:2:3:3 respectively. After the accounts of the year
had been closed, it was found that interest on drawings @ 6% per annum has not been taken inconsideration.
The drawings of the partners were: A Rs. 20,000; B Rs. 24,000; C Rs. 32,000 and D Rs. 44,000. Give the
necessary adjusting entry.
Solution

Working Note:-
Calculation of Interest on Drawings:-
A = Rs. 20,000 × 6% × 6/12 = Rs. 600
B = Rs. 24,000 × 6% × 6/12 = Rs. 720
C = Rs. 32,000 × 6% × 6/12 = Rs. 960
D = Rs. 44,000 × 6% × 6/12 = Rs. 1320

Q.6. Anil, Sunil and Sanjay have omitted interest on capitals for two years ended on 31st March, 2021. Their
fixed capitals in two years were Anil Rs. 8,00,000, Sunil Rs. 7,00,000 and Sanjay Rs. 3,00,000. Rate of interest
on capitals is 10% p.a. Their profit sharing ratios were in first year 4:3:2 and in second year 3:2:1. Give
necessary adjusting entry at the beginning of next year.
Solution

Q.7. On 1st April, 2020 the capitals of A and B were Rs. 4,00,000 and Rs. 2,00,000 respectively. They
divided profits in their capital ratio. Profit for the year ended 31st March, 2021 were Rs. 3,00,000 which have
been duly distributed among the partners, but the following transactions were not passed through the books:-
(a) Interest on Capitals @ 12% p.a.,
(b) Interest on Drawings A Rs. 12,000; B Rs. 10,000.
(c) Commission due to B Rs. 20,000 on special transaction.
(d) A is to be paid a salary of Rs. 50,000.
You are required to pass a journal entry on 10th April, 2016 which will not affect the Profit and Loss A/c of the
firm and at the same time will rectify the errors.

Solution

Q. 8. A, B and C were partners in a firm. On 1-4-2020 their capitals stood at Rs. 5,00,000, Rs. 2,50,000 and
Rs. 2,50,000 respectively. As per the provisions of the partnership deed:
(a) C was entitled for a salary of Rs. 10,000 p.m.
(b) Partners were entitled to interest on capital at 5% p.a.
(c) Profits were to be shared in the ratios of capitals.
The net profit for the year ended 31.3.2021 of Rs. 3,30,000 was divided equally without providing for the above
terms. Pass an adjustment entry to rectify the above error.
Solution

Q.9. X, Y and Z are partners in a firm sharing profits and losses in the ratio 5:3:2. Their capitals (Fixed) are
Rs. 2,00,000; Rs. 1,50,000; Rs. 1,25,000 respectively. For the year ended 31st March, 2018 interest on capital
was credited them @ 8% instead of 10%. Give adjusting journal entry.

Solution
Q. 10 The capitals of A, B and C stood at Rs. 20,000, Rs. 15,000 and Rs. 10,000 respectively after the
necessary adjustment in respect of drawings and net profits. Subsequently, it was discovered that interest on
capital at 10% p.a. and interest on drawings Rs. 130, Rs. 90 and Rs. 50 respectively have been ignored. Profit of
the year already adjusted was Rs. 10,000. Drawings of the partners were Rs. 1,000, Rs. 800 and Rs. 500
respectively. They share profits and losses in the ratio of 2:1:1. Give necessary journal entry rectify the
accounts.
Solution