1

FUNDAMENTAL OF PARTNERSHIP

When two or more person starts business to earn profits and the business is carried on by all or
PARTNERSHIP any one of them acting for all is called Partnership. The persons who have entered into
partnership with one another are individually called partners and collectively called firm. The
name in which the partnership business is carried on is called the firm’s name.

DEFINATION According to Section 4 of Indian Partnership Act, 1932, “Partnership is the relation
between persons who have agreed to share the profits of a business carried on by all or
any of them acting for all.”

CHARACTERSTICS OR FEATURES OF PARTNERSHIP

 Two or more persons:- There must be at least two persons to form a

partnership and all such persons must be competent to contract. According to
Indian Contract Act, 1872, every pe₹on except the following are competent to
contract:
(a) Minor, CAN
(b) Persons of unsound mind, and MINOR BE
(c) Persons disqualified by any law. A
Maximum Number of Partners: The Companies Act, 2013 (Section 464) PARTNER?
empowe₹ the Central Government to prescribe number of partners in a firm
subject to maximum of 100 partners. The Central Government has prescribed
maximum number of partners in a firm to be 50 vide Rule 10 of the Companies
(Miscellaneous) Rules, 2014. Thus, in effect, a partnership firm cannot have
more than 50 partners.

 Agreement: Partnership comes into existence by an agreement, either

written or oral. It is the basis of relationship among partners, which may be for a
particular venture, for a period or at will. The written agreement among the
partners is known as Partnership Deed.
 Lawful Business: A partnership is established for a lawful business.
 Profit-sharing: The agreement between/among the partners must be to share profits and losses
of the business. It is not essential that all the partners must share losses.
 Business Operation: Business of the partnership can be carried on by all the partners or by
any of them acting for all the partners. In other words, partners are agents as well as the principals.

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 As an agent, he represents other partners and thereby, binds them through his acts. As a principal,
he is bound by the act of other partners.

G
 Every partner has the right to participate in the management of the business.
 Every partner has the right to be consulted about the affai₹ of the business.
 Every partner has the right to inspect the books of account and have a copy of it.
 Every partner has the right to share profits or losses with othe₹ in the agreed ratio.
 If a partner has advanced loan, he has the right to receive interest thereon
at an agreed rate of interest. In case the rate of interest is not agreed,
interest is paid at the rate provided in the Indian Partnership Act, 1932,
i.e., @ 6% p.a.

PARTNERSHIP DEED
Partnership Deed is a written agreement among the partners detailing the terms and
conditions of the partnership. It is a legal document signed by all the partners and it
contain the following point:-
 Name of the firm.
 Name of all the partners.
 Nature and scope of the business of the firm.
 Capital contribution of each partner.
 Profit sharing ratio of the partners.
 Valuation and treatment of goodwill.
 Admission and retirement of a partner.
 Method of dissolution of firm.

A firm may add or delete any provisions of deed.

Is it necessary to
form a partnership
deed ?

It is not essential but desirable to have a Partnership Deed. In case Partnership Deed does not exist,
provisions of the Indian Partnership, Act, 1932 will apply.

In the absence of a Partnership Deed or where it is silent, i.e., it does not have a clause in respect of the
following matte₹, the provisions of the Indian Partnership Act, 1932 apply:

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 Matte₹ Provisions of the Indian Partnership Act, 1932
1. Sharing of Profits/Losses Profits/Losses are shared equally by the partners.
2. Interest on Capital Interest on capital is not paid (allowed) to partners.

3. Interest on Drawings Interest on drawings is not charged from partners.

4. Interest on Advance/Loan by a Partner Interest on loan by partner is paid (allowed) @ 6% p.a.
Interest on loan by partner is a charge against profit. It means interest
is paid whether the firm earns profit or incu₹ loss.
5. Remuneration to Partners Remuneration (salary, commission, etc.,) is not paid (allowed)
to any partner.
6. Admission of Partner New partner cannot be admitted unless all the partners agree to it.

The partners may amend the Partnership Deed to include or change any of the above clauses.

Registration of the
firm is optional or
compulsory.?

It is optional but recommended to register a Partnership firm but if a firm not register itself the following consequences
will be face by partnership firm :-

I. Firm and any partner cannot file suit against third party.
II. Third party can file suit against the firm as well as any partner.
III. Any partner cannot sue other partner as well as firm.

A partnership firm, like a proprieto₹hip firm, prepares Trading Account, Profit and Loss Account
and Balance Sheet. In addition, a partnership firm prepares Profit and Loss Appropriation
Account to which net profit or net loss as per the Profit and Loss Account is transferred to
appropriate it as per the agreement among partners. This account, is an extension of the Profit and
Loss Account, and is credited with the amount of Net Profit or debited with the amount of Net Loss
(transferred from Profit and Loss Account). It is credited with the amount of interest on drawings of
the partners (which is loss to the partners but an income for the firm) and debited with interest on the
capitals of the partners, partners’ salaries and commissions, etc., (which are losses for the firm and
incomes for the partners).

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Specimen of the Profit and Loss Appropriation Account

PROFIT AND LOSS APPROPRIATION ACCOUNT

Dr. for the year ended 31ST MARCH 20……. Cr.

Particula₹ ₹ Particula₹ ₹

To Profit and Loss A/c ... By Profit and Loss A/c ...
(Net Loss* transferred from (Net Profit* transferred from
Profit and Loss Account) Profit and Loss Account)
To Interest on Capitals: By Interest on Drawings:
Abhay ... Abhay ...
Bhaskar ... ... Bhaskar ... ...
To Partners’ Salaries ... By Loss* transferred to:
To Partners’ Commissions ... *Abhay’s Capital A/c ...
To Reserve ... **(or Abhay’s Current A/c)
To Profit* transferred to: *Bhaskar’s Capital A/c ... ...
*Abhay’s Capital A/c ... **(or Bhaskar’s Current A/c)
**(or Abhay’s Current A/c)
*Bhaskar’s Capital A/c ... ...
**(or Bhaskar’s Current A/c)
... ...

The Partners’ Capital Accounts may be maintained by following either:

(i) Fixed Capital Accounts Method; or

(ii) Fluctuating Capital Accounts Method.

PARTNER'S CAPITAL ACCOUNTS

FIXED CAPITAL METHOD FLUCTUATING CAPTIAL METHOD

CAPITAL ACCOUNT
CAPITAL ACCOUNT CURRENT ACCOUNT

PARTNER’S CAPITAL INTEREST ON CAPITAL PARTNER’S CAPITAL

ADDITIONAL CAPITAL INTEREST ON DRAWING ADDITIONAL CAPITAL

WITHDRWAN FROM CAPITAL REMUNERATION TO PARTNERS WITHDRWAN FROM CAPITAL

DRAWINGS INTEREST ON CAPITAL

PROFIT AND LOSS INTEREST ON DRAWING

DRAWINGS

PROFIT AND LOSS

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Specimen of the Partner’s capital Account
Fixed capital accounts method
Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.
Particula₹ X (₹) Y (₹) Z (₹) Particula₹ X (₹) Y (₹) Z (₹)
To Cash/Bank A/c ... ... ... By Balance b/d ... ... ...
(Drawings against Capital) By Cash/Bank A/c ... ... ...
To Balance c/d ... ... ... (Additional capital)
... ... ... ... ... ...

Dr. PARTNERS’CURRENT ACCOUNTS Cr.

Particula₹ X (₹) Y (₹) Z (₹) Particula₹ X (₹) Y (₹) Z (₹)
To Balance b/d ... ... ... By Balance b/d ... ... ...
(In case of debit (In case of credit
opening balance) opening balance)
To Drawings A/c ... ... ... By Interest on Capital A/c ... ... ...
(Drawings against Profit) By Commission A/c ... ... ...
To Interest on Drawings A/c ... ... ... By Partner’s Salary A/c ... ... ...
To Profit and Loss A/c ... ... ... By Profit and Loss App. A/c ... ... ...
(Loss) (Profit)
To Balance c/d * ... ... ...
... ... ... ... ... ...

Fluctuating capital accounts method

Dr . PARTNERS’ CAPITAL ACCOUNTS Cr.

Particula₹ X (₹) Y (₹) Z (₹) Particula₹ X (₹) Y (₹) Z (₹)

To Balance b/d (In case of ... ... ... By Balance b/d (In case of ... ... ...
debit opening balance) credit opening balance)
To Cash/Bank A/c (Drawings ... ... ... By Cash/Bank A/c ... ... ...
against Capital) (Additional Capital)
To Drawings A/c (Drawings ... ... ... By Interest on Capital A/c ... ... ...
against Profit) By Commission A/c ... ... ...
To Interest on Drawings A/c ... ... ... By Partner’s Salary A/c ... ... ...
To Profit and Loss A/c ... ... ... By Profit and Loss App. A/c ... ... ...
(Loss) (Profit)
To Balance c/d * ... ... ...
... ... ... ... ... ...

If the question is silent about

the method of preparation of
capital account then which
method used?
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 Difference between Fixed Capital Account and Fluctuating Capital Account

Basis Fixed Capital Account Fluctuating Capital Account

1. No. of Accounts Two accounts are maintained for each One account (i.e., Capital Account) is
Maintained partner, i.e., Fixed Capital Account and maintained for each partner.
Current Account.
2. Frequency of Change Balance in Fixed Capital Account does Balance changes with every transaction of
not change except when further capital is the partner with the firm.
introduced or capital is withdrawn.
3. Transferring the Transactions relating to Capitals are transferred All transactions whether for capital, drawings,
Transactions to Fixed Capital Accounts and transactions interest on drawings, interest on capital,
for drawings, interest on drawings, interest salary, commission, share of profit or loss are
on capital, salary, commission, share of profit transferred to Capital Account.
or loss are transferred to Current Account.
4. Balance Capital Account has credit balance. Fluctuating Capital Account may have credit
or debit balance.

NOTES

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 PRACTICAL PROBLEMS
When partnership deed is absent or silent
1. Ram and Mohan are partners in a firm without any partnership deed. Their capitals are: Ram ₹8,00,000 and Mohan
₹6,00,000. Ram is an active partner and looks after the business. Ram wants that profit should be shared in proportion of
capitals. State with reason whether his claim is valid or not.
2. X and Y are equal partners. They had advanced a loan of ₹40,000, contributed equally to the firm on 1st August, 2020. The
partnership deed is silent regarding the payment of interest on loan. What amount of interest on loan is payable to X, if the
firm closes its books of account on 31st March every year?
3. You and your friends Amit and Vinod are partners in a firm sharing profits and losses equally. State, who is correct in the
following case? Give reasons also. Amit has provided a capital of ₹50,000 whereas Vinod provided ₹10,000 only as capital.
Vinod, however, has provided ₹20,000 as loan to the firm. There is no partnership agreement. Vinod claims interest of
₹1,200, whereas you and Amit do not want to give any interest.
4. A, B and C are partners in a firm. They do not have a Partnership Deed. At the end of the fi₹t year of the business, they faced
the following problems:

 A wants that interest on capital should be allowed to the partners but B and C do not agree.
 B wants that the partners should be allowed to draw salary but A and C do not agree.
 A and B want that C should pay interest on loan given to him by the firm but C does not agree.
 A and B having contributed larger amounts of capital, desire that the profits should be
distributed in the ratio of their capital contribution but C does not agree.

State how you will settle these disputes if the partners approach you for the purpose.

Calculation of interest on capital

5 Vidit and Seema were partners in a firm sharing profits and losses in the ratio of 3 : 2. Their capitals were ₹1,20,000 and
₹2,40,000, respectively. They were entitled to interest on capital @ 10% p.a. calculate interest on capital.
6 Asha and Deepti were partners in a firm sharing profits and losses in the ratio of 3 : 1. Their fixed capitals were₹3,00,000 and
₹2,00,000 respectively. They were entitled to interest on capital @10% p.a. calculate interest on capital and pass journal
entries for interest on capital.
7 From the following Balance Sheet of Long and Short, calculate interest on capital @ 8% p.a. for the year ended 31st March,
2020
Liabilities ₹ Assets ₹
Long’s Capital A/c 1,20,000 Fixed Assets 3,00,000
Short’s Capital A/c 1,40,000 Other Assets 60,000
General Reserve 1,00,000
3,60,000 3,60,000

During the year, Long withdrew ₹ 40,000 and Short withdrew ₹ 50,000. Profit for the year was ₹ 1,50,000 out of which
₹ 1,00,000 was transferred to General Reserve

₹
Capital at the end of the year ...
Add: Withdrawal of Capital ...
...
Less: Additional Capital introduced during the year ...
Capital in the beginning of the year ...

₹
Capital at the end of the year ...
Add: Drawings Against Capital (Withdrawal of Capital) ...
Drawings Against Profit ...

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 Interest on Drawings ...
Share of Loss for the year* ...
...
Less: Additional Capital introduced during the year ...
Partner’s Salary/Remuneration ...
Interest on Capital ...
Share of Profit for the year* ... ...
Capital in the beginning of the year
...

8 P and Q are partners sharing profits and losses in the ratio of 2 : 1 with capitals of ₹ 2,00,000 and ₹ 1,00,000 respectively.
Pass the necessary Journal entry or entries for distribution of profit/loss for the year ended 31st March, 2021 in each of the
alternative cases:
Case 1. If Partnership Deed does not provide for interest on capital and the profit for the year is ₹ 40000
Case 2. If Partnership Deed provides for interest on capital @ 12% p.a. and loss for the year is ₹ 30,000.
Case 3. If Partnership Deed provides for interest on capital @ 12% p.a. and the profit for the year is ₹ 42,000.
Case 4. If Partnership Deed provides for interest on capital @ 12% p.a. as a charge on profit and the profit for the
year is ₹ 40,000.
Case 5. If Partnership Deed provides for interest on capital @ 12% p.a. as a charge on profit and the profit for the
year is ₹ 4,000.
Case 6. If Partnership Deed provides for interest on capital @ 12% p.a. as a charge on profit and the profit for the
year is ₹ 36,000
Case 6. If Partnership Deed provides for interest on capital @ 12% p.a. as a charge on profit and the profit for the
year is ₹ 30,000

Calculation of interest on drawings

9 A partner draws ₹ 4,000 per month. Under the Partnership Deed, interest on drawings is to be charged @ 10% p.a. Calculate
interest if the drawings are made regularly:
 in the beginning of the month,
 in the middle of the month, or
 at the end of the month
10 A partner draws ₹ 2,500 per month. Under the Partnership Deed, interest on drawings is to be charged @ 15% p.a. Calculate
interest if the drawings are made regularly:
 in the beginning of the quarter,
 in the middle of the quarter, or
 at the end of the quarter
11 A partner draws ₹ 1,000 per month for six months for the year ended 31st March, 2021. Under the Partnership Deed, interest
on drawings is to be charged @ 12% p.a. Calculate interest if the drawings are made regularly:
 in the beginning of the month,
 in the middle of the month, or
 at the end of the month
12 M, N and O started a firm on 1st October, 2020 sharing profits equally. M drew regularly ₹ 5,000 in the beginning of every
month for the six months ended 31st March, 2021. N drew regularly₹ 4,000 at the end of every month for the six months
ended 31st March, 2021. O drew regularly₹ 4,000 in the middle of every month for the six months ended 31st March, 2021.
Calculate interest on drawings @ 5% p.a. for the period ended 31st March, 2021.
13 M, N and O started a firm on 1st October, 2020 sharing profits equally. M drew regularly ₹ 5,000 in the beginning of every
month for the year ended 31st March, 2021. N drew regularly₹ 4,000 at the end of every month for the six months ended 31st
March, 2021. O drew 4,000 during the year ended 31st March, 2021. Calculate interest on drawings @ 10% p.a. for the
period ended 31st March, 2021.
14 Calculate interest on drawings of Rakesh @ 10% for the year ended 31st March, 2020 in each of the following alternative
cases:
Case 1.If his drawings during the year were ₹ 30,000.
Case 2.If he withdraws ₹ 2,500 per month during the year

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Calculation of interest on partner’s loan
15 Ram ,Shweta and Neeraj are partners sharing profits and losses equally. Ram and Shweta gave loans to the firm on 1st
October, 2019 of ₹ 1,00,000 and ₹ 1,50,000 respectively. It is agreed that interest @ 9% p.a. will be paid on loan. Books of
account of the firm are closed on 31st March every year. Interest on loan is yet to be paid as on 31st March, 2021.
Pass Journal entries in the books of account of the firm.
16 Akhil and Bharat are partners sharing profits and losses in ratio of 2 : 3 with capitals of ₹ 2,00,000 and ₹ 1,00,000
respectively. On 1st October, 2019, Akhil and Bharat gave loans of ₹ 4,00,000 and ₹ 2,00,000 respectively to the firm. There
is no agreement as to payment of interest on the loan by partner. Determine the amount of profit or loss for the year ended
31st March, 2020 in each of the following cases to be distributed between the partners:
Case 1. If the Profit before interest for the year amounted to ₹ 25,000.
Case 2. If the Profit before interest for the year amounted to ₹ 15,000.
Case 3. If the Loss before interest for the year amounted to ₹ 25,000.

Preparation of profit and loss appropriation account

17 P and Q were partners in a firm sharing profits in 3 : 1 ratio. Their respective fixed capitals were ₹8,00,000 and ₹6,00,000. The
partnership deed provided interest on capital @ 8 % p.a. The net profit of the firm for the year ended 31st March, 2020 was
₹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
18 Ajay, Devgan and Kajal were partners in a firm sharing profits and losses in the ratio of 3 : 3 : 4. Their partnership deed provided
for the following :
(i) Interest on capital @ 5% p.a.
(ii) Interest on drawing @ 12% p.a.
(iii) Interest on partners’ loan @ 6% p.a.
Ajay was allowed an annual salary of ₹ 4,000; Devgan was allowed a commission of 10% of net profit as shown by Profit
and Loss Account .Their fixed capitals were Ajay : ₹ 5,00,000; Devgan : ₹ 8,00,000 and Raj : ₹ 4,00,000. On 1st April, 2020
Devgan extended a loan of ₹ 1,00,000to the firm. The net profit of the firm for the year ended 31st March, 2021 before
interest on Devgan’s loan was ₹ 3,06,000. Prepare Profit and Loss Appropriation Account of Ajay, Devgan and Kajal for the
year ended 31st March, 2021 assuming that Devgan withdrew ₹ 5,000 at the end of each month, Ajay withdrew₹ 10,000 at
the end of each quarter and Kajal withdrew ₹ 40,000 at the end of each half year.
19 A and B are partners sharing profits equally. Business is being carried from the property owned by A on a yearly rent of ₹
24,00. A is to get salary of ₹ 1,20,00 p.a. and B is to get commission @ 5% of net sales, which during the year was ₹ 30,00,00.
Profit for the year ended 31st March, 20201 before providing for rent was ₹ 50000.
Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2021.
20 Silver and Rajat started a partnership firm on April 1, 2020. They contributed ₹8,00,000 and ₹6,00,000 respectively as their
capitals and decided to share profits and losses in the ratio of 3 : 2.The partnership deed provided that Silver was to be paid a
salary of ₹20,000 per month and Rajat a commission of 5% on turnover. It also provided that interest on capital be allowed @
8% p.a. Silver withdrew ₹20,000 on 1st December, 2019 and Rajat withdrew ₹5,000 at the end of each month. Interest on
drawings was charged @ 6% p.a. The net profit as per Profit and Loss Account for the year ended 31st March, 2020 was
₹4,89,950. The turnover of the firm for the year ended 31st March, 2021 amounted to ₹20,00,000.
Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2021
21 L, M and N are partners in a firm sharing profits & losses in the ratio of 2 : 3 : 5. On April 1, 2020 their fixed capitals were
₹2,00,000, ₹3,00,000 and ₹4,00,000 respectively. Their partnership deed provided for the following:
(i) Interest on capital @ 9% per annum. ‘
(ii) Interest on drawings @ 12% per annum.
(iii) Interest on partners’ loan @ 12% per annum.
On July 1, 2020, L brought ₹1,00,000 as additional capital and On November 1, 2020 N withdrew ₹1,00,000 from
his capital. During the year L, M and N withdrew ₹12,000, ₹18,000 and ₹24,000 respectively for their pe₹onal use.
On January 1, 2020 the firm obtained a loan of ₹1,50,000 from M. The net profit earned by the firm for the year
ended March 31, 2020 was ₹1,01,500 before paying rent for his pe₹onal building to be used as godown for firm to N
payable at ₹1,000 p.m. Prepare Profit & Loss Appropriation Account Show your workings clearly
22 Ajay and Vijay are partners sharing profits in the ratio of 3 : 2. Ajay is a non-working partner and contributes ₹ 5,00,000 as his
capital. Vijay is a working partner of the firm. The Partnership Deed provides for interest on capital @ 8% p.a. and salary to

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 every working partner @ ₹ 8,000 per month. Profit before providing for interest on capital and partner’s salary for the year
ended 31st March, 2021 was ₹ 80,000. Show the distribution of profit.
23 Kabir, Zoravar and Parul are partners sharing profits in the ratio of 5 : 3 : 2. Their capitals as on 1st April, 2019 were: Kabir—₹
5,20,000, Zoravar—₹ 3,20,000 and Parul—₹ 2,00,000.The Partnership Deed provided as follows:
 Kabir and Zoravar each will get salary of ₹ 24,000 p.a.
 Parul will get commission of 2% of Sales.
 Interest on capital is to be allowed @ 5% p.a.
 Interest on Drawings is to be charged @ 5% p.a.
 10% of Divisible Profit is to be transferred to General Reserve.

Sales for the year ended 31st March, 2020 were ₹ 50,00,000. Drawings by each of the partners during the year was ₹ 60,000.
N Net Profit for the year was ₹ 1,55,500. Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2021.

24 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:
 The fi₹t ₹ 20,000 in proportion to their capitals.
 Next 30,000 in the ratio of 5 : 3 : 2.
 Remaining profits to be shared equally.
The firm earned net 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.

Preparation of Partner’s capital account

From Q.no. 17 to Q.no. 24 prepare partner’s capital accounts by both method

Adjustments for Incorrect Appropriations in the Past (Past Adjustment)
25 P and Q were partners in a firm sharing profits and losses equally. Their fixed capitals were ₹ 2,00,000 and ₹ 3,00,000
respectively. The partnership deed provided for interest on capital @ 12% per annum. For
the year ended 31st March, 2021, the profits of the firm were distributed without providing interest on capital.
Pass necessary adjustment entry to rectify the error.
26 Suman and Sudha were partners in a firm sharing profits equally. Their fixed capitals were ₹ 50,000 and ₹ 25,000 respectively.
The partnership deed provided interest on capital at the rate of 12% per annum. For the year ended 31st March, 2016, the profits
of the firm were distributed without providing interest on capital.
Pass necessary adjustment entry to rectify the error.
27 Mahi and Uday are partners in a firm sharing profits in the ratio 2 : 3. Their capital accounts as on April 1, 2020 showed
balances of ₹ 70,000 and ₹ 60,000 respectively. The drawings of Mahi and Uday during the year 2020-2021 were ₹ 16,000 and₹
12,000 respectively. Both the amounts were withdrawn on 1st January 2021. It was subsequently found that the following items
had been omitted while preparing the final accounts for the year ended 31st March 2021.
(a) Interest on capitals @ 6% p.a.;
(b) Interest on drawings @ 6% p.a.;
(c) Mahi was entitled to a commission of ₹ 4,000 for the whole year.
Showing you workings clearly pass a rectifying entry in the books of the firm.
28 Rajiv and Mohan were partners in a firm. Their partnership deed provided that the profits shall be divided as follows :
Fi₹t ₹ 20,000 to Rajiv and the balance in the ratio of 4 : 1. The profits for the year ended 31st March, 2017 were ₹ 60,000 which
had been distributed among the partners. On 1-4-2020 their capitals were Rajeev ₹ 90,000 and Mohan ₹ 80,000. Interest on
capital was to be provided @ 6% p.a. While preparing the profit and loss appropriation interest on capital was omitted.
Pass necessary rectifying entry for the same. Show your workings clearly.
29 Nina and Sara were partners in a firm with fixed capitals of ₹ 5,00,000 and ₹4,00,000 respectively. It was discovered that interest
on capital @ 6% p.a. was credited to the partners for the two yea₹ ending 31st March, 2018 and 31st March, 2019 whereas there
was no such provision in the partnership deed. Their profit sharing ratio during the last two yea₹ was:
2017-18 4:5
2018-19 5:1

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 Showing your workings clearly, pass the necessary adjustment entry to rectify the error.
30 A, B and C were partners. They started business in one of the remote tribal areas of Orissa. They were interested in the
development of the tribal community by providing good education and health. On 31st March, 2021, after making adjustments
for profits and drawings their capitals were A – ₹ 4,00,000, B – ₹ 3,00,000 and C – ₹ 2,00,000.The drawings of the partners were
A – ₹ 4,000 per month, B – ₹ 3,000 per month and C – ₹ 2,000 per month. The profit of the firm for the year ended 31st March,
2021 was 6,00,000. Subsequently it was found that the interest on capital @ 6% p.a due had been omitted.
Showing your working notes clearly, pass necessary adjustment entry for the above.
Also identify any two values highlighted in the above question.

31 Roy, Rahul and Rajesh were partners doing an electronic goods business in Uttarakhand. After the accounts of partnership were
drawn up and closed, it was discovered that interest on capital has been allowed to partners @ 6% p.a. for the yea₹ ending 31st
March, 2020 and 2021, although there is no provision for interest on capital in the partnership deed. On the other hand, Roy and
Rahul were entitled to a salary of ₹3,500 and ₹4,000 per quarter respectively, which has not been taken into consideration. Their
fixed capitals were ₹4,00,000, ₹3,60,000 and ₹2,40,000 respectively.

Year Ended Profit Sharing Ratio

31st March, 2020 3:2:1
31st March, 2021 5:3:2
Pass necessary adjusting entry for the above adjustments on 1st April, 2021. Show your workings clearly
32 On March 31, 2021 after the close of books of accounts, the capital accounts of A, B and C stood at ₹. 24,000; ₹. 20,000 and ₹.
12,000 respectively. The profit for the year ₹. 36,000 was distributed equally. Subsequently it was discovered that interest on
capital @ 5% p.a. had been omitted. The profit sharing ratio was 2: 2: 1. Pass an adjustment journal entry.
33 Kumar and Raja was partners in a firm sharing profits in the ratio of 7 : 3. Their fixed capitals were: Kumar ₹. 9,00,000 and Raja
₹. 4,00,000. The partnership deed provided for the following but the profit for the year was distributed without providing for: (i)
Interest on capital @ 9% per annum.
(ii) Kumar’s salary ₹. 50,000 per year and Raja’s salary ₹. 3,000 per month.
Pass the adjustment entry.
34 R and S were partners in a firm sharing profits in 3:2 ratio. Their respective fixed capitals were ₹. 10, 00, 000 and ₹. 15,00,00.
The partnership deep provided the following:
(i) Interest on capital @ 10% p.a.
(ii) Interest on drawings @ 12% p.a.
During the year ended 31.3.2021, R’s drawing were ₹. 1, 000 per month drawn at the end of every month and S’s drawings were
₹. 2,000 per month drawn in the beginning of every month. After the preparation of final accounts for the year ended 31.3.2007
it was discovered that interest on R’s drawings was not taken into consideration.
Calculate interest on R’s drawings and give necessary adjusting entry for the same.
35 A, B & C were partners. Their capitals were ₹. 30,000; ₹. 20,000 and ₹. 10,000 respectively, According to the partnership deed
they were entitled to an interest on capital at 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 their capitals without providing for any of the above
adjustments. The profits were to be shared in the ratio of 2:2: 1. Pass the necessary adjustment entry showing the workings
clearly.
36 Mita and Usha are partners in a firm sharing profits in the ratio of 2 : 3. Their Capital Accounts as on 1st April, 2020 showed
balances of ₹ 1,40,000 and ₹ 1,20,000 respectively. The drawings of Mita and Usha during the year 2020–21 were ₹ 32,000 and
₹ 24,000 respectively. Both the amounts were withdrawn on 1st January 2021. It was subsequently found that the following
items had been omitted while preparing the final accounts for the year ended 31st March, 2021:
 Interest on Capital @ 6% p.a.
 Interest on Drawings @ 6% p.a.
 Mita was entitled to a commission of ₹ 8,000 for the whole year.
Showing your working clearly, pass a rectifying entry in the books of the firm
37 Mona, Nisha and Priyanka are partners in a firm. They contributed ₹. 50,000 each as capital three yea₹ ago. At that time
Priyanka agreed to look after the business as Mona and Nisha were busy. The profits for the past three year ₹. 15,000, ₹. 25,000
and ₹. 50,000 respectively. While going through the books of accounts Mona noticed that the profit had been distributed in the

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 ratio of 1 : 1 : 2. When she enquired form Priyanka about this, Priyanka answered that since she looked after the business she
should get more profit. Mona disagreed and it was decided to distribute profit equally retrospectively for the three yea₹.
(a) You are required to make necessary correction in the books of accounts of Mona, Nisha and Priyanka by passing an
adjustment entry.
(b) Identify the value which was not practiced by Priyanka while distributing profits.
38 A, B and C were partners in a firm. On 1st April, 2012 their capitals stood as ₹. 5,00,000; ₹. 2,50,000 and ₹. 2,50,000
respectively. As per provisions of the partnership deed:
(i) C was entitled for a salary of ₹. 5,000 per month.
(ii) A was entitled for a commission of ₹. 80,000 p.a.
(iii) Partners were entitled to interest on capital @ 6% p.a.
(iv) Partners will share profits in the ratio of capitals.
Net profit for the year ended 31.03.2013 was ₹ 3,00,000 which was distributed equally, without taking into consideration the
above provisions. Showing your workings clearly, pass necessary adjustment entry for the above.
39 Jony, Sudhir and Robert are partners in a firm sharing profits in the ratio of 3 : 1 : 1.Their fixed capital balances are ₹ 4,00,000, ₹
1,60,000 and ₹ 1,20,000 respectively. Net profit for the year ended 31st March, 2018 distributed amongst the partners was ₹
1,00,000, without taking into account the following adjustments:
 Interest on capitals @ 2.5% p.a.;
 Salary to Jony ₹ 18,000 p.a. and commission to Robert ₹ 12,000.
 Jony was allowed a commission of 6% of divisible profit after charging such commission.
Pass a rectifying Journal entry in the books of the firm. Show workings clearly.
40 On March 31st, 2021, the balances in the capital accounts of Ekta, Ankit and Chahat after making adjustments for profits and
drawings were ₹1,50,000, ₹2,10,000 and ₹2,70,000 respectively. Subsequently it was discovered that the interest on capital
and drawings had been omitted. The profit for the year ended 31st March, 2014 was ₹1,20,000. During the year Ekta withdrew
₹24,000 and Ankit and Chahat each withdrew a sum of ₹24,000 in equal instalments in the middle of each quarter.The interest
on drawings is to be charged @ 5% p.a. and interest on capital is to be allowed @ 10% p.a. The profit sharing ratio among the
partners was 1 : 2 : 3.
Showing your working notes clearly, pass the necessary rectifying entry.
41 A&B are partners in the ratio of 3:2. The firm maintains fluctuating capital accounts and the balance of the same
as on 31-03-2020 amounted to ₹1,60,000 and ₹1,40,000 for A and B respectively. Their drawings during the year
were ₹30,000 each. As per partnership deed interest on capital @10% p.a. on opening capitals had been provided to them.
Calculate opening capitals of partners given that their profits were ₹90,000. Show your workings clearly.
42 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 (Show workings
clearly)

Guarantee of Profit to a Partner

43 Vikas and Vivek were partners in a firm sharing profits in the ratio of 3 : 2. On 1.4.2014 they admitted Vandana as a new partner
for 1/5th share in the profits with a guaranteed profit of ₹ 1,50,000. The new profit sharing ratio between Vivek and Vikas will
remain the same but they decided to bear any deficiency on account of guarantee to Vandana in the ratio 2 : 3. The profit of the
firm for the year ended 31.3.2015 was ₹ 9,00,000.Prepare Profit and Loss Appropriation Account of Vikas, Vivek and Vandana
for the year ended 31.3.2015.
44 A and B are partners sharing profits in the ratio of 3 : 2. C was admitted for 1/6th share of profit with a minimum guaranteed
amount of ₹ 10,000. At the close of the fi₹t financial year the firm earned a profit of 54,000. Find out the share of profit which
A, B and C will get.
45 Arun, Varun and Tarun were partners of a law firm sharing profits in the ratio of 5:3:2. Their partnership deed provided the
following:
 Interest on partners’ capital @ 5% p.a.
 Arun guaranteed that he would earn a minimum annual fee of ₹6,00,000 for the firm.
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  Tarun was guaranteed a profit of ₹2,50,000 (excluding interest on capital) and any deficiency on account of this was to
be borne by Arun and Varun in the ratio of 2:3.
During the year ending March 31, 202, Arun earned a fee of ₹3,20,000 and net profits earned by the firm were 8,60,000.
Partner’s capital on April 01, 2019 were Arun - ₹30,00,000; Varun - ₹ 3,00,000 and Tarun- ₹2,00,000. Prepare Profit and Loss
Appropriation account and show your workings clearly
46 Ajay, Binay and Chetan were partners sharing profits in the ratio of 3 : 3 : 2. The Partnership Deed provided for the following:
 Salary of ₹ 2,000 per quarter to Ajay and Binay.
 Chetan was entitled to a commission of ₹ 8,000.
 Binay was guaranteed a profit of ₹ 50,000 p.a.
The profit of the firm for the year ended 31st March, 2015 was ₹ 1,50,000 which was distributed among Ajay, Binay and Chetan
in the ratio of 2 : 2 : 1, without taking into consideration the provisions of Partnership Deed. Pass necessary rectifying entry for
the above adjustments in the books of the firm. Show your workings clearly.
47 The partners of a firm, Alia, Bhanu and Chand distributed the profits for the year ended 31st March, 2017,₹ 80,000 in the ratio of
3 : 3 : 2 without providing for the following adjustments:
 Alia and Chand were entitled to a salary of ₹ 1,500 each per month.
 Bhanu was entitled for a commission of ₹ 4,000.
 Bhanu and Chand had guaranteed a minimum profit of ₹ 35,000 p.a. to Alia any deficiency to borne equally by Bhanu
and Chand.
Pass the necessary Journal entry for the above adjustments in the books of the firm. Show workings clearly.
48 Jay, Vijay and Karan were partners of an architect firm sharing profits in the ratio of 2 : 2 : 1. Their partnership deed provided
the following :
 A monthly salary of ₹.15,000 each to Jay and Vijay.
 Karan was guaranteed a profit of ₹.5,00,000 and Jay guaranteed that he will earn an annual fee of ₹.2,00,000.
 Any deficiency arising because of guarantee to Karan will be borne by Jay and Vijay in the ratio of 3 : 2. During the
year ended 31st March, 2018 Jay earned fee of ₹1,75,000 and the profits of the firm amounted to ₹15,00,000.
Showing your workings clearly prepare Profit and Loss Appropriation Account and the Capital Account of Jay, Vijay and Karan
for the year ended 31st March, 2018.

NOTES

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