12th commerce book keeping accountancy

8/11/2019 12th Commerce Book Keeping Accountancy

1/24


2/24

Written according to the New Textbook (2013-2014)

published by the Maharashtra State Board of

Secondary and Higher Secondary Education, Pune.

Std. XII Commerce

Book-Keeping

and

AccountancyProf. Shaikh Riyaz Abdul Kadar

(GDC & A, PGDFM, PGDBM)Shaikh Imran Abdul Kadar

(M.Com, GDC & A)

Ms. Toral Juthani(M.Com, PGDFM)

Ms. Urvi Mehta(M.Com, C.S.)

Salient Features

Precise Theory for every topic including Specimen Journal Entries

and Formats for Ledger Accounts.

Covers Answers To All Textual Questions as well as Board

Questions (March 08 March 14).

Includes a section of Solved Example for every chapter covering

array of questions from simple to complex.

Includes Additional Practice Problems for better preparation.

Quick Review at the end of each chapter to facilitate quick revision.

Two Model Question Papers as per the latest paper pattern.

Includes Board Question Paper of March 2014.

Simple and Lucid language.

Self evaluative in nature.

TargetPublications PVT. LTD.Mumbai, Maharashtra

Tel: 022 6551 6551

Website:www.targetpublications.org | email :[email protected]

Edition: March 2014


3/24

Std. XII Commerce

Book-Keepingand Accountancy

Target Publications PVT. LTD.All rights reserved

First Edition : March 2014

Price :`

330/-

Printed at:

India Printing Works42, G.D. Ambekar Marg,Wadala,Mumbai 400 031

Published byTargetPublications PVT. LTD.Shiv Mandir Sabhagriha,Mhatre Nagar, Near LIC Colony,Mithagar Road,Mulund (E),Mumbai - 400 081Off.Tel: 022 6551 6551email: [email protected]

Website:

www.targetpublications.org

email :[email protected]

No part of this book may be reproduced or transmitted in any form or by any means, C.D. ROM/Audio

Video Cassettes or electronic, mechanical including photocopying; recording or by any information

storage and retrieval system without permission in writing from the Publisher.


4/24

Preface

Book Keeping and Accountancy is an indispensable subset of accounting. It refers to the process ofaccumulating, organizing, storing and accessing the financial information of a business concern,thus facilitating in their day-to-day operations. It further aids in preparing the financial statements

such as Trading Account, Profit & Loss Account and Balance Sheet at the end of each accountingyear.

We present to you "Std. XII Commerce: Book-Keeping and Accountancy" with a revolutionaryfresh approach towards content, thus laying a platform for an in depth understanding of the subject.

This book has been written according to the revised syllabus and guideline as prescribed by the stateboard and includes specimen journal entries/ ledgers and illustrations. We have provided a sectionof solved examples for every chapter, which covers an array of questions from simple to complex. Itfurther encompasses solutions to all textual questions as well as board questions from March 2008to March 2014.

Furthermore, towards the end of every chapter we have provided a set of sums for practice whichhelps in revision. This is followed with a section of 'Quick Review' which quickly summarizes thekey points of the chapter at a glance. The book also includes two model question papers as per thelatest paper pattern.

We are sure, this study material will turn out to be a powerful resource for students and facilitatethem in understanding the concepts of this subject in the most lucid way.

The journey to create a complete book is strewn with triumphs, failures and near misses. If youthink we've nearly missed something or want to applaud us for our triumphs, we'd love to hear fromyou.

Please write to us on: [email protected]

Best of luck to all the aspirants!

Yours faithfully

Publisher


5/24

oard paper Pattern

Time: 3 Hours Total Marks: 80

Q.1. Attempt any THREE of the following sub-questions : [15]

Includes five sub-questions of five marks each. Out of the five, three sub-questions have to be

answered.

(A) Answer the following questions in one sentence each:

Five sub-questions will be given. [one mark each]

(B) Write a word/term/phrase which can substitute each of the following statements :

Five sub-questions will be given. [one mark each]

(C) Select the most appropriate alternative from those given below and rewrite the

statements:

Five sub-questions. Each sub question carries four options. [one mark each]

(D) State whether the following statements are True or False :Five sub-questions will be given. [one mark each](E) Prepare a specimen of Bill of Exchange.

Q.2. Practical problem on Single Entry System. [8]

OR

Theory Questions on Analysis of Financial Statements.

Two sub-questions will be given. [four marks each]

Q.3. Practical problem on Reconstitution of Partnership (Admission / Retirement / Death of a

Partner). [10]

OR

Practical problem on Reconstitution of Partnership (Admission / Retirement / Death of a

Partner).

Questions will be asked from any two of the above three chapters.

Q.4. Practical problem on Bill of Exchange. [10]

Q.5. Practical problem on Dissolution of Partnership Firm. [10]

OR

Practical problem on Accounting for Shares / Debentures.

One question will be asked from Dissolution of Partnership Firm and the second question will be

asked either from Accounting for Shares or Accounting for Debentures.

Q.6. Practical problem on Accounts of Not for Profit Concerns. [12]

Q.7. Practical problem on Partnership Final Accounts. [15]

Total: 80

Scheme of Evaluation

Marks

(A) Written Examination 80

(B) Project Preparation (with Viva) 20

Total: 100


6/24

Unitwise Weightage

No. Units Marks Marks With Option

Problem Objectives Total Problem Objectives Total

1.

Introduction to Partnership

(Objectives only) and

Partnership Final Accounts

15 02 17 15 03 18

2.Accounts of Not for Profit

Concerns12 01 13 12 02 14

3.

Admission / Retirement /

Death of a Partner

ORAdmission / Retirement /

Death of a Partner

10 02 12

10

1002 22

4.

Dissolution of Partnership Firm

OR

Accounting for Shares /

Accounting for Debentures

10 02 12

10

10

04 24

5.

Bill of Exchange (Objectives

include 5 marks for question

on specimen)

10 06 16 10 10 20

6.

Single Entry SystemOR

Analysis of Financial Statements

(Theory Questions)

08 02 10

08

08

04 20

Total 65 15 80 93 25 118


7/24

No. Units Page No.

1. Introduction to Partnership 1

2. Partnership Final Accounts 18

3.Reconstitution of Partnership

(Admission of Partner)130

4.Reconstitution of Partnership

(Retirement of Partner)203

5. Reconstitution of Partnership(Death of Partner)

241

6. Dissolution of Partnership Firm 270

7 Accounts of Not for Profit Concerns 323

8 Single Entry System 397

9 Bill of Exchange (Trade Bill) 449

10Company Accounts Part I

(Accounting for Shares)545

11Company Accounts Part II

(Accounting for Debentures)591

12 Analysis of Financial Statements 615

Model question paper I 640

Model question paper II 645

Board Question Paper March 2014 650

Note: All Textual questions are represented by * mark.


8/24

TargetPublications Pvt. Ltd. Chapter 01: Introduction to Partnership

1

1

ntroduction to partnership

Contents:

1.1 Introduction

1.2 Partnership

1.3 Partnership Deed

1.4 Indian Partnership Act, 1932

1.5 Methods of Capital Accounts

1.1 Introduction

There are many forms of business organizations. Sole Trading Concern is the oldest form. The sole proprietorship

is a form of business that is owned, managed and controlled by a single individual. He has to arrange capital for

the business and he alone is responsible for its management. But, when he needs to expand the business, he needsmore resources and capital. It becomes very difficult for a sole trader to manage and run the activities of thebusiness alone with limited resources and capital.

The limited access of a sole proprietor to financial resources and his limited managerial skills create the need for

an additional partner. Thus, the Partnership form of business comes into existence.

1.2 Partnership

Meaning and Definition:

Partnership is an association of two or more persons who agree to combine their financial resources and

managerial abilities to operate a business and share Profits and Losses in an agreed ratio.

The definitionof Partnership as per the Indian Partnership Act, 1932 is, Partnership is the relation between

persons who have agreed to share profit of business carried on by all or any of them acting for all."

Features:

i. Agreement:

Partnership is formed on the basis of an agreement between two or more persons to carry on business

activities. Without agreement partnership cannot be formed. Agreement may be in written or oral form.

The terms and conditions of partnership are laid in a document known as Partnership Deed.

ii. Registration:

It is not compulsory to register a partnership firm except, in the state of Maharashtra. However, if the

partners so decide, it may be registered with the Registrar of Firms.

iii. Lawful Business:

Illegal business activities are not permitted by law. Partnership form of business should only undertakethose business activities which are permitted by law or which are legal.

iv. Membership:

To form a partnership firm minimum two persons are required. The maximum limit on the number of

persons is 10 for banking business and 20 for other businesses. If the number exceeds the above limit, the

partnership becomes illegal.

v. Sharing of Profits and Losses:

There must be an agreement among the partners to share the Profits and Losses of the business in an agreed

profit sharing ratio. All partners of the firm will be entitled to an equal share in Profit and Losses, if the

partnership deed is silent about the ratio.


9/24

TargetPublications Pvt. Ltd. Std. XII (Commerce): Book-Keeping & Accountancy

2

vi. Unlimited Liability:

The partners of the firm have Unlimited Liability. They are jointly as well as individually liable for thedebts and obligations of the firms. If the Assets of the firm are insufficient to meet the firms Liabilities, the

personal properties of the partners can also be utilized for the repayment of the firms Liabilities. However,

the Liability of a Minor Partner is limited to the extent of his share in the profit.

vii. Management:

All the partners can participate actively in the business management depending on the agreement formed.viii. Dissolution:

Dissolution means to close the business. Legally a partnership comes to an end if any partner dies, retires or

becomes insolvent.

ix. Relationship between the Partners:

The partnership business may be carried on by all or any of the partners acting for all. Thus, each partner is

a principal and so can act in his own right. At the same time, he can act on behalf of the other partners as an

agent. Thus, every partner acts as an Agent as well as Principal.

Types of Partners:

Following are the various types of partners:

i. Active Partners:

Partners who take active part in the conduct of day-to-day transactions of the firm are called ActivePartners. These partners perform the business activities on behalf of the other partners.

ii. Sleeping Partners:

A Sleeping Partner is also known as Dormant Partner. Sleeping or Dormant Partners are those, who do not

take active part in the management of the business. Such partners only contribute capital in the firm and are

bound by the activities of other partners. However, they share in the profits and losses of the business

iii. Nominal Partners:

Nominal partners are those who lend their name to the firm but do not have interest in the business. They do

not make any capital contribution, and are not entitled to take part in management, but are liable to third

parties, like the other partners.

iv. Minor Partner:

A minor is a person who has not completed 18 years of age. A minor cannot become a partner because he is

not qualified to enter into a contract. However, he may be admitted to the benefits of partnership with themutual consent of all the partners. His liability is limited to the extent of his share in the capital and profits

of the firm. He cannot file a suit against the firm or its partners to get his share except when he wants to

disassociate himself from the firm.

v. Partner in Profits only:

This type of a partner only shares in the profits of the firm. However, his liability for the firm's debts is

unlimited. He is not allowed to take part in the management of the firm. A partnership firm may associate

with such a partner for their money and goodwill.

vi. Partner by Estoppel:

A Partner by Estoppel neither contributes capital nor is entitled to any share in the profits. He is actually not

a partner in the firm. However, any person who represents himself in front of a third party as a partner of

the firm becomes a Partner by Estoppel. He becomes liable to the third parties that presume him to be a

partner of the firm.

1.3 Partnership Deed

Partnership Deed is the written agreement between or among the partners. It is also known as Articles of

Partnership. Partnership Deed lays down the terms and conditions of partnership and the rights, duties and

obligations of partners for the internal management of the firm. A partnership deed is very helpful in situations of

conflicts or disputes arising between partners. The relations of partners are governed by the Partnership Deed. A

Partnership Deed generally contains the following important contents:

i. Names and addresses of the Partnership Firm.

ii. Nature of business to be conducted and its duration.


10/24


3

iii. Names, Addresses and other information about the partners.

iv. The total amount of Capital contributed by the each partner.

v. The amount of drawings permissible for each partner.

vi. Rate of Interest on Capital and Drawings, if any.

vii. Profit Sharing Ratio of the partners.

viii. Rate of Interest on Loan given by partners to the firm.ix. Accounting and Audit procedures of the firm.

x. Methods of valuation of the Goodwill of the firm.

xi. Provisions for admission, retirement and insolvency of partners.

xii. Provisions for Dissolution of the firm and settlement of accounts after dissolution.

xiii. Division of work among the partners and their Remuneration / Commission, if any.

xiv. Method of operating Bank Accounts and authority for signing the cheques.

xv. Other terms and conditions which are agreed by all the partners.

1.4 Indian Partnership Act, 1932

The Indian Partnership Act is in force since 1932. This act is applicable in the absence of partnership deed or if

the partnership deed is silent on any specific point. Stated below are the important provisions of this act:i. Distribution of Profits:

In the absence of partnership deed, all the partners are treated as equal and they will be entitled to equal

share in the Profits and Losses of the business. However, if profit sharing ratio is given, then Profits /

Losses should be shared by partners in the agreed ratio only.

ii. Interest on Capital:

According to the Act, no interest is to be allowed on Partners Capital. However, if a provision is made in

the partnership deed, it should to be given to the partners as per the agreement.

iii. Interest on Drawings:

As per the Act, there is no provision for Interest on Drawings. However, if the partnership deed states that

Interest on Drawings is to be charged, then it should be charged as per the agreement.

Interest on Drawings is to be charged for a period of six months in cases where the total amount of

Drawings is given but the dates of withdrawals are not available.iv. Interest on Partners Loan:

Interest on Loan should be allowed at the rate of 6% per annum as per the Act. If a separate provision is

made in the partnership deed then interest should be allowed as per the agreement.

v. Salary or Commission to Partners:

Partners are not entitled to any Salary or Commission for doing any additional or extra work for the firm.

However, if any special provision is made in the partnership deed then it should be provided as per the

agreement.

vi. Admission of a New Partner:According to the Act, a person can be admitted into partnership only with the consent of all the existing

partners.

1.5 Methods of Capital Accounts

An amount contributed by a partner either in the form of cash or kind into the business of a partnership firm is

known as Partners Capital. This amount may be equal or it may be in the profit sharing ratio or as per the

common understanding among partners. Capital Accounts of partners can be maintained in two ways:

i. Fixed Capital Method:

Under the Fixed Capital Method, the amount of capital of the partners remains fixed unless some additional

capital is introduced or some amount of capital is withdrawn by an agreement among the partners. Thus,

under fixed capital method, two accounts are maintained for each partner namely Partners Capital Account

and Partners Current Account.


11/24


4

a. Partners Capital Account: The below items are recorded in this account:

1. Amount contributed by a partner at the beginning.

2. Additional Capital introduced by a partner during the year.

3. Part of capital amount withdrawn during the year.

Journal Entries recorded in Partners Capital Account under Fixed Capital Method:

Date Particulars L.F.Debit Credit

i. Additional Capital introduced by Partners in Cash

Cash/Bank A/c

To Partners Capital A/c

(Being additional capital introduced)

Dr. xxx

xxx

ii. Additional Capital introduced by Partners in Kind

Asset A/c

To Partners Capital A/c

(Being capital brought in the form of asset)

Dr. xxx

xxx

iii. Capital is Withdrawn by the Partner

Partners Capital A/c

To Cash/Bank A/c

(Being amount of capital withdrawn by partner)

Dr. xxx

xxx

Format for Partners Capital Account under Fixed Capital Method:

Partners Capital Account

Dr. Cr.

ParticularsX Y

ParticularsX Y

To Cash/Bank A/c xxx xxx By Balance b/d (Credit Balance) xxx xxx(Amount of Capital Withdrawn) By Cash/Bank A/c xxx xxx

(Additional Capital)

By Assets A/c xxx xxx

(Capital in Kind)

To Balance c/d (Credit Balance) xxx xxx By Balance c/d (Debit Balance) xxx xxx

xxx xxx xxx xxx[Note:Generally Partners Capital Account shows a Credit Balance and is shown on the Liability side of the

Balance sheet. If the account has a Debit Balance, it is shown on the Asset side of the Balance sheet.]

b. Partners Current Account: This account is maintained when partners adopt the Fixed Capital

Method. Below items are recorded in this account:

1. Amount withdrawn by partners for their personal use.

2. Goods withdrawn by partners for their personal use.

3. Interest on Partners Capital.

4. Interest on Partners Drawings.

5. Salary or Commission to Partners.

6. Distribution of Profit or Loss of the Firm.


12/24


5

Journal Entries recorded in Partners Current Account under Fixed Capital Method:

Date Particulars L.F.Debit Credit

i. Interest on Capital allowed to Partners

Interest on Capital A/c

To Partners Current A/c(Being interest on capital allowed to partners)

Dr. xxx

xxx

ii. Transfer of Interest on Capital to Profit & Loss Account

Profit & Loss A/c

To Interest on Capital A/c

(Being interest on capital transferred to Profit & Loss A/c)

Dr. xxx

xxx

iii. Salary/Commission allowed to Partners

Salary/Commission A/c

To Partners Current A/c

(Being salary or commission allowed to partners)

Dr. xxx

xxx

iv. Transfer of Salary/Commission to Profit & Loss Account

Profit & Loss A/c

To Salary/Commission A/c

(Being salary/commission transferred to Profit & Loss A/c)

Dr. xxx

xxx

v. Interest charged on Partners Drawings

Partners Current A/c

To Interest on Drawings A/c

(Being Interest on drawing charged)

Dr. xxx

xxx

vi. Transfer of Interest on Drawings to Profit & Loss Account

Interest on Drawings A/c

To Profit & Loss A/c

(Being interest on drawings transferred to Profit & Loss

Account)

Dr. xxx

xxx

vii. Drawings made by the Partners in Cash Drawings A/c

To Cash A/c

(Being cash withdrawn for personal use)

Dr. xxx

xxx

viii. Drawings made by the Partners in Goods

Drawings A/c

To Goods A/c

(Being goods withdrawn for personal use)

Dr. xxx

xxx

ix. Transfer of Drawings to Partners Current Account


To Drawings A/c

(Being drawings transferred to Partners Current Account)

Dr. xxx

xxx

x. For distribution of Net Profit or Net Loss

a. Net Profit

Profit & Loss A/c

To Partners Current A/c

(Being profit transferred to Current Account)

Dr. xxx

xxx

b. Net Loss


To Profit & Loss A/c

(Being net loss transferred to Current Account)

Dr. xxx

xxx


13/24


6

Format for Partners Current Account under Fixed Capital Method:

Partners Current Account

Dr. Cr.

ParticularsX Y

ParticularsX Y

To Balance b/d (Debit Balance) xxx xxx By Balance b/d (Credit Balance) xxx xxx

To Drawings A/c (Cash) xxx xxx By Interest on Capital xxx xxx

To Drawings A/c (Goods) xxx xxx By Interest on Loan xxx xxx

To Interest on Drawings A/c xxx xxx By Salary to Partner xxx xxx

To Profit and Loss A/c (Loss) xxx xxx By Commission to Partner xxx xxx

By Profit and Loss A/c (Profit) xxx xxx


xxx xxx xxx xxx[Note: Partners current account can either have a Debit Balance or a Credit Balance. If Partners Current

Account has a Debit Balance, it should be shown on the Asset side of the Balance sheet and if it has a Credit

Balance, it should be shown on the Liability side of the Balance sheet.]

ii. Fluctuating Capital Method:

In the Fluctuating Capital Method, only one account, i.e. Partners Capital Account is maintained for each

partner. All the transactions affecting a Partner's Account like Interest on Capital, Drawings, Interest on

Drawings, Salary/Commission to Partners and Share of Profit or Loss are recorded in the Partners Capital

Account. As a result of this, the Closing Balance of the Partners Capital Account keeps fluctuating

(changing). Thus, it is known as the Fluctuating Capital Method. Below transactions are recorded in the

Partners Capital Account under this method:

1. Capital Introduced or the Opening Balance 2. Additional Capital introduced during the year

3. Interest on Capital 4. Drawings made during the year

5. Interest on Drawings 6. Salary/ Commission to Partners

7. Withdrawal of Capital 8. Share of Profit or Loss

9. Closing BalanceFormat for Partners Capital Account under Fluctuating Capital Method:


Dr. Cr.

ParticularsX Y

ParticularsX Y

To Balance b/d (Debit Balance) xxx xxx By Balance b/d xxx xxx

To Drawings A/c (Cash) xxx xxx (Credit Balance)

To Drawings A/c (Goods) xxx xxx By Cash/Bank A/c xxx xxx

To Interest on Drawings A/c xxx xxx (Additional Capital)

To Cash/Bank A/c xxx xxx By Assets A/c xxx xxx

(Withdrawal of Capital) (Capital in Kind)To Profit and Loss A/c xxx xxx By Interest on Capital A/c xxx xxx

(Share of Loss) By Interest on Loan A/c xxx xxx

By Salary A/c xxx xxx

By Commission A/c xxx xxx

By Profit and Loss A/c xxx xxx

(Share of Profit)


xxx xxx xxx xxx


14/24


7

Notes:

i. Credit Balance of Partners Capital Account is shown on the Liability side of the Balance sheet and Debit

Balance of Partners Capital Account is shown on the Asset side of the Balance sheet.

ii. In the absence of information, partners follow Fluctuating Capital Method.

iii. Interest on Capital is paid on the Opening Balance only if date of additional capital is not given. If the date of

additional capital is given, then interest on capital will be given on total capital and will be calculated as under

a. On Opening Balance for 12 months.b. On Additional Capital from date of additional capital to date of Balance Sheet i.e., 31

stMar.

Interest on Capital is paid only if there is a profit in the business.

iv. Interest on Drawings is provided as under:

a. If Drawings are made at the beginning of every month, Interest is charged for 6.5 months.

b. If Drawings are made in the middle of every month, Interest is charged for 6 months.

c. If Drawings are made at the end of every month, Interest is charged for 5.5 months.

d. In absence of information, Interest is charged for 6 months.

Solved Examples

Q.1. Ram and Shyam are partners with their capital `30,000 and `20,000. Net Profit of the firm is `40,000,

what will be each partners share if:

i. Partnership deed is silent or in the absence of information.

ii. They share in the ratio of their capital.

iii. They share in ratio of 3 : 4.

iv. The profit is `19,001 and partners share equally.

Solution:i. If the partnership deed is silent or in the absence of information both partner will share Profits &

Losses equally i.e. 50 : 50

Rams Share = `20,000

Shyams Share = `20,000.

ii. If they share Profits & Losses in the ratio of their capital, then the Profit sharing ratio will be

calculated as under:

Ram : Shyam

30,000: 20,000

i.e. 3 : 2

So, their profit will be

Rams Share =20,000

53 = `12,000

Shyams Share =20,000

52 = `8,000

iii. If they share Profits & Losses in the ratio of 3 : 4 then profit will be calculated as under:

Rams Share =40,000

73 = `17,143

Shyams Share =40,000

74 = `22,857

iv. If the profit is `19,001 and partners share equally, profit will be distributed as under:

Ram : Shyam

1 : 1

i.e.19,001

2= `9,500.5

In this case, Profit will be shared as under

Rams Share = `9,501

Shyams Share = `9,500

`1 is given more to Ram because he had contributed more capital as compared to Shyam.


15/24


8

Q.2. Calculate the Interest on Capital in the following situation:

Rate of interest is 12%. Capital of Ram ` 40,000, Laxman ` 60,000 and Shyam ` 30,000. Shyam was

admitted on 01-10-11 for year ending 31-3-12.

Solution:

Interest on Partners Capital = Capital Rate of Interest No. of Monthsin theFirm

12

Interest on Rams Capital = 40,000 12

100

12

12= ` 4,800

Interest on Laxmans Capital = 60,000 12

100

12

12= ` 7,200

Interest on Shyams Capital = 30,000 12

100

6

12= ` 1,800

Q.3. Capital of Arjun is `20,000 and that of Kailash is `30,000 as on 01-04-11. Arjun introduced additional

capital of `15,000 on 01stJan, 2012 and Kailash introduced additional capital of `10,000 on 01-07-2011.What will be the amount of interest for the year ending 31-03-12, if rate of interest is 12%.

Solution:i. Interest on Arjuns capital will be calculated as under

a. Arjuns Old Capital = 20,000 12

100

12

12= `2,400

b. Arjuns New Capital = 15,000 12

100

3

12= ` 450

Total Interest on Arjuns Capital = 2,400 + 450 = `2,850

ii. Interest on Kailashs Capital will be calculated as under

a. Kailashs Old Capital = 30,000 12

100

12

12= `3,600

b. Kailashs New Capital = 10,000 12100

912

= ` 900

Total Interest on Kailashs Capital = 3,600 + 900 = ` 4,500

Q.4. Bunty has a capital of `50,000 and Chunky has a capital of `30,000 as on 01-04-11. If the rate of interest

is 12% and Bunty had reduced his capital to `30,000 on 01-10-11, what will be interest on their capital as

on 31-03-2012.

Solution:

Interest on Buntys Capital will be calculated in two parts:

i. Interest on `30,000 for 12 months

30,000

12

100

12

12 = 3,600

ii. Interest on `20,000 for 6 months

20,000 12

100

6

12= 1,200

Total Interest on Buntys capital = 3,600 + 1,200 = `4,800.

Interest on Chunkys Capital

30,000 12

100 = `3,600.


16/24


9

Q.5. Calculate the Interest on Drawings at the rate of 10% per annum in the following situations:

Drawings of Laxman `2,000 p.m.

i. Made at the beginning of the month.

ii. Made during the middle of the month.

iii. Made at the end of each month.

iv. If problem is silent about the date of withdrawal.

Solution:i. If ` 2,000 p.m. is withdrawn at the beginning of each month then interest will be calculated for

6.5 months.

2,000 12 10

100

6.5

12= `1,300

ii. If ` 2,000 p.m. is withdrawn during the middle of the month then interest on drawing will be

calculated for 6 months.

2,000 12 10

100

6

12= `1,200

iii. If ` 2,000 p.m. is withdrawn at the end of each month then interest on drawing will be calculated for

5.5 months.

2,000 12 10

100

5.5

12= `1,100

iv. If the problem is silent about the date of drawings then interest on drawings will be charged for

6 months.

2,000 12 10

100

6

12= `1,200

Q.6. Gross profit of the firm is `60,000 and Vijay is paid 10% commission on gross profit then what will be hiscommission?

Solution:

Vijays Commission will be:

60,000 10

100= `6,000

Q.7. Net Profit of the firm is `18,000 after paying commission at the rate of 10% to Raman, a partner. What is

his commission and what is the profit before commission?

Solution:

Profit before commission (100) = Net Profit (90) + Ramans Commission (10)

= 18,000 100

90= `20,000

Ramans Commission = 20,000

10

100 =`

2,000

Q.8. Rahul and Sumit are partners sharing profits and losses in the ratio 2:1. On 1stApril, 2012 their Capital

balances are Rahul ` 60,000 and Sumit ` 30,000, their drawings are ` 6,000 and ` 4,000 respectively.

According to the partnership deed, 10% interest is allowed on partners capital and 12% interest is charged

on their drawings. Rahul gets salary of `3,000 per month and Sumit is entitled to receive commission @

5% on sales which is `5,00,000. The profit of the firm is `30,000.

Prepare Partners Capital Account and Partners Current Account for the year ended 31 stMarch, 2013 in the

below situations:

A. Fixed Capital Method B. Fluctuating Capital Method


17/24


10

Solution:

A. Fixed Capital Method:


Dr. Cr.

ParticularsRahul Sumit


By Balance b/d 60,000 30,000

To Balance c/d 60,000 30,000

60,000 30,000 60,000 30,000


Dr. Cr.



To Drawings A/c 6,000 4,000 By Interest on Capital A/c 6,000 3,000

To Interest on Drawings A/c 360 240 By Salary A/c 36,000

By Commission A/c 25,000

By Profit & Loss A/c 20,000 10,000

To Balance c/d 55,640 33,760

62,000 38,000 62,000 38,000B. Fluctuating Capital Method:


Dr. Cr.



To Drawings A/c 6,000 4,000 By Balance b/d 60,000 30,000

To Interest on Drawings A/c 360 240 By Interest on Capital A/c 6,000 3,000

By Salary A/c 36,000



To Balance c/d 1,15,640 63,760

1,22,000 68,000 1,22,000 68,000Working Notes:

i. Effects to Profit and Loss Account

Dr. Cr.

ParticularsAmount Amount

ParticularsAmount

Amount

To Interest on Capital A/c By Interest on Drawings A/cRahul 6,000 Rahul 360

Sumit 3,000 9,000 Sumit 240 600

To Rahuls Salary A/c 36,000

To Sumit Commission A/c 25,000

To Net Profit c/d

Rahul (2/3) 20,000

Sumit (1/3) 10,000 30,000


18/24


11

ii. Interest on Capital:

Rahul = 60,000 10

100= `6,000

Sumit = 30,000 10

100= `3,000

iii. Interest on Drawings:

Rahul = 6,000 12

100

6

12= `360

Sumit = 4,000 12

100

6

12= `240

[Note:When the amounts of total drawings are given but date of withdrawals are not given then for calculation of

interest on drawings, the period would be taken as six months.]

iv. Rahuls Salary = 3,000 12 = `36,000

v. Commission on sales to Sumit

5,00,000 5100

= `25,000

vi. Distribution of Profits:

Rahuls Share = 30,000 2

3= `20,000

Sumits Share = 30,000 1

3= `10,000

Q.9. Sona and Mona are partners. They started their business on 1-04-2012 on which date they contirbuted

` 3,00,000 each as their capital. On 1-07-2012, Sona purchased furniture of

` 60,000 for the firm from her personal resources. On 1-10-2012, Mona supplied her own Machinery

Costing `70,000 for the business of the firm. On 1-01-2013 Sona and Mona had withdrawn `30,000 & `

40,000 respectively for their personal use.

The Partnership Deed provides for Interest on Capital @ 7% p.a. and Interest on Drawings @ 10% p.a.

Sona is to get salary of `2,000 per month starting from 1-07-2012 and Mona is to get commission on sales

@ 10%. Sales for the year is `2,00,000 and Net Profit for the year is `50,000.

Prepare Capital and Current Account of the Partners in the following situations:

A. Fixed Capital Method B. Fluctuating Capital Method

Solution:

A. Fixed Capital Method:

Partners Capital AccountDr. Cr.

ParticularsSona Mona


By Cash/Bank A/c 3,00,000 3,00,000

By Furniture A/c 60,000

By Machinery A/c 70,000

To Balance c/d 3,60,000 3,70,000

3,60,000 3,70,000 3,60,000 3,70,000


19/24


12


Dr. Cr.



To Drawings A/c 30,000 40,000 By Interest on Capital A/c 24,150 23,450

To Interest on Drawings A/c 750 1,000 By Salary A/c 18,000

By Commission A/c 20,000 By Profit & Loss A/c 25,000 25,000

To Balance c/d 36,400 27,450

67,150 68,450 67,150 68,450B. Fluctuating Capital Method:


Dr. Cr.



To Drawings A/c 30,000 40,000 By Cash/Bank A/c 3,00,000 3,00,000

To Interest on Drawings A/c 750 1,000 By Furniture A/c 60,000

By Machinery A/c 70,000 By Interest on Capital A/c 24,150 23,450

By Salary A/c 18,000



To Balance c/d 3,96,400 3,97,450

4,27,150 4,38,450 4,27,150 4,38,450Working Notes:

i. Interest on Capital:

a. Calculation of Interest on Capital for Sona

Opening Capital = 3,00,000 7

100

12

12= `21,000

Additional Capital = 60,000 7

100

9

12= `3,150

Total Interest on Capital payable to Sona = 21,000 + 3,150 = `24,150

b. Calculation of Interest on Capital for Mona

Opening Capital = 3,00,000 7

100

12

12= `21,000

Additional Capital = 70,000 7

100

6

12= `2,450

Total Interest on Capital payable to Mona = 21,000 + 2,450 = `23,450

ii. Interest on Drawings:

a. Sona = 30,000 10

100

3

12= `750

b. Mona = 40,000 10

100

3

12= `1,000

iii. Sonas Salary:

2,000 9 = `18,000iv. Monas Commission:

2,00,000 10

100= `20,000


20/24


13

Objective Type Questions

I. Answer in one sentence only: [1 mark each]

*1. What is partnership?

Ans: Partnership is an association of two or more persons who agree to combine their financial resources

and managerial abilities to conduct a business and share profits and losses in an agreed ratio

*2. How many persons are required to form partnership business?Ans: Minimum two persons are required to form partnership business.

*3. What is the liability of partners?

Ans: The Liability of Partners is Unlimited, Joint and Several.

*4. What is the relation between the partners?

Ans: The relationship between partners is that of Principal and Agent.

*5. Who is called nominal partner?

Ans: A partner who lends his name to the firm but does not have any interest in the business is known as a

Nominal Partner.

*6. Who is called Minor partner?

Ans: A partner of less than 18 years in age is called Minor Partner.

7. What is the liability of the partner in profit only?

Ans: The Liability of a Partner in Profit only is Unlimited.

8. Who is a Partner by Estoppel?

Ans: The person who is not actually a partner but, represents himself as a partner in front of third parties is

known as Partner by Estoppel.

*9. What is partnership deed? [Mar 12, Oct 11]

Ans: Partnership Deed is the written agreement between or among the partners that lays down the terms

and conditions of partnership and the rights, duties and obligations of partners for the internal

management of the firm.

*10. Why is partnership deed prepared?

Ans: Partnership deed is prepared to resolve future conflicts and disputes among partners.

*11. Which act is applicable to partnership business?

Ans: The Indian Partnership Act, 1932 is applicable to partnership business.

12. At what rate is the Interest on Partners Loan is paid in the absence of provision in partnership

deed?

Ans: In the absence of a provision in partnership deed, Interest on Partners Loan is paid at 6% p.a.

*13. What are the methods of maintaining Partners Capital Account?

Ans: Fixed Capital Method and Fluctuating Capital Method are the two methods of maintaining Capital

Account of partners.

*14. What do you mean by Fixed Capital Method?

OR

What is Fixed Capital Method? [Mar 11]

Ans: Fixed Capital Method is a method of maintaining Capital Account of partner, where the capital is kept

fixed and all the other transactions are recorded by preparing Partners Current Account except, when

additional capital is introduced in the business or capital is withdrawn by a partner.

*15. What is Fluctuating Capital Method?

Ans: Fluctuating capital method is where all the transactions related to partners are recorded through

Partners Capital Account and there is no requirement to prepare Partners Current Account. In this

method, the capital of the partner is fluctuating.

*16. When is Partners Current Account opened?

Ans: Partners Current Account is opened under Fixed Capital Method.


21/24


14

II. Write the word/ term/ phrase which can substitute each of the following statements: [1 mark each]

*1. An association of two or more persons to carry on business.

*2. A partnership agreement between the partners in written form.

3. Written terms of agreement between the partners.

4. The maximum number of partner in banking business.

*5. To close the business of partnership firm.

6. The relationship between partners.

*7. A partner who is engaged in day to day activities of the business.

8. Active partner is also called as.

*9. A partners who contributes only capital for the business but does not take any active part.

*10. A partner who provides only his name to the partnership firm. [Mar 08]

*11. A partner below the age of 18 years.

12. A partner whose liability is limited.

*13. The partner who is entitled to share profits only.

*14. A partner who acts and behaves like a partner, but he is not a partner of the firm.

*15. A amount contributed by the partners into the business.

*16. An amount withdrawn by partner from the business for his personal use.

*17. Under this method capital balances of partner remains constant.

*18. Capital method in which Partners Current Account is opened.

19. Capital method in which both, Capital Account and Current Account are maintained for each partner.

*20. Method of capital account in which capital balances of partners changes every year.

21. Capital Method under which only Partners Capital Account is maintained.

Ans: 1. Partnership 2. Partnership Deed

3. Partnership Deed 4. Ten5. Dissolution 6. Principal and Agent

7. Active Partner 8. Working Partner

9. Sleeping Partner/Dormant Partner 10. Nominal Partner

11. Minor Partner 12. Minor Partner

13. Partner in Profit Only 14. Partner by Estoppel

15. Partners Capital 16. Drawings

17. Fixed Capital Method 18. Fixed Capital Method

19. Fixed Capital Method 20. Fluctuating Capital Method

21. Fluctuating Capital Method

III. Select the most appropriate alternative from those given below and rewrite the statements:

[1 mark each]

*1. Partnership is an association of _______ or more persons.(A) two (B) seven

(C) ten (D) twenty

2. Partnership business must be _______.

(A) lawful (B) illegal

(C) voluntary (D) immoral

3. Minimum _______ persons are required to form a partnership.

(A) one (B) two

(C) three (D) seven


22/24


15

*4. Maximum _______ persons are required to form a partnership having trading business.

(A) twenty (B) fifty

(C) seven (D) ten

*5. Maximum _______ persons are required to form a partnership having banking business.

(A) two (B) seven

(C) ten (D) twenty

*6. The liability of the partner in a firm is _______.

(A) zero (B) limited

(C) unlimited (D) proportionate

7. Partners are _______ liable for the debts of firm.

(A) individually (B) jointly

(C) several (D) personally

*8. A partner who provides only capital to the firm is called as _______.

(A) active (B) nominal

(C) sleeping (D) minor

9. A partner who does not take active part in the management of business is known as _______.

(A) Working Partner (B) Sleeping Partner

(C) Nominal Partner (D) Partners in Profit only

*10. A partner who lends only his name to the firm is called as _______ partner.

(A) partner in profits only (B) partner by estoppel

(C) nominal (D) minor

*11. A partner below 18 years of age is called as _______ partner.

(A) active (B) sleeping

(C) nominal (D) minor

12. In the absence of partnership deed the partners share profits and losses in the _______ ratio.

(A) capital (B) equal

(C) 1 : 2 (D) initial contribution

*13. The Indian Partnership Act is in force since _______. [Mar 10, Oct 10]

(A) 1932 (B) 1956

(C) 1960 (D) 1984

*14. The Interest on capital of a partner is credited to _______ Account.

(A) Trading (B) Profit and Loss

(C) Partners Capital (D) Cash

*15. The drawings of partners are transferred to _______ Account.

(A) Trading (B) Profit and Loss

(C) Partners Capital (D) Balance Sheet

*16. The interest on drawings is transferred to _______ side of Partners Current Account.

(A) debit (B) credit

(C) asset (D) liability

*17. If dates of drawings are not given interest on drawings is charged for _______ months.

(A) three (B) six

(C) nine (D) twelve

*18. Under fixed capital method, Capital Account and _______ Account is opened for each partner.

(A) Partners Drawing (B) Partners Salary

(C) Partners Current (D) Partners Commission

*19. Under Fixed Capital Method, salary or commission to partner is credited to _______ Account.

(A) Partners Capital (B) Partners Current

(C) Partners Drawings (D) Partners Salary


23/24


16

*20. A debit balance of Partners Current Account will appear on the _______ side of the Balance Sheet.

(A) Assets (B) Liability

(C) Debit (D) Credit

21. The balance of Capital Account fluctuates under _______ Capital Method.

(A) Blocked (B) Fluctuating

(C) Fixed (D) Semi Blocked22. Under _______ Capital Method only Capital Account of partners is opened.

(A) Fixed (B) Fluctuating

(C) Single (D) Double

IV. State whether the following statements are TRUE or FALSE: [1 mark each]

*1. Partnership is an association of two or more persons.

*2. Partnership firm is a trading concern.

*3. Partnership agreement must be in written form.

*4. There is no limit to maximum number of partners in a firm.

5. There can be partnership firm with 25 partners.

6. There can be partnership only for the sharing of loss.

*7. Partner must share profits and losses equally.

*8. If the partnership deed is silent, partners share profits and losses equally.

9. Each partner has a right to take part in the conduct of business.

10. Partners not taking an active part in the business is called sleeping partner.

11. The liability of the sleeping partner is limited.

*12. A partner who provides only capital to the firm is called as nominal partner.

13. A partner who gives only his name to the business is called nominal partner.

*14. The liability of minor partner is limited.

15. Partnership deed must always be in written form.

16. Partnership firm in India is governed according to Indian Partnership Act 1932.

*17. The interest on drawings is an income of the partnership firm.

*18. An interest on capital is an expenditure of the partnership firm.

*19. Partners are entitled to get salary or commission.

*20. The balance of capital account remains constant under fixed capital method.

*21. Partners Current Account is opened when fluctuating capital method is adopted.

*22. Partners current account always shows credit balance.

*23. Capital Account always shows credit balance.

24. Adjustments to partners capital are passed through Current Account when the capitals are fluctuating.

Ans: 1. True 2. True 3. False 4. False

5. False 6. False 7. False 8. True

9. True 10. True 11. False 12. False

13. True 14. True 15. True 16. True

17. True 18. True 19. False 20. True

21. False 22. False 23. False 24. False


24/24


Quick Review

Types of Partners

i. Active Partner

ii. Sleeping Partneriii. Nominal Partner

iv. Minor Partner

v. Partner in Profits only

vi. Partner by Estoppel

Methods of Capital Accounts

Fixed Capital Method Fluctuating Capital Method

Partners Capital Account Partners Current Account

Transactions

i. Amount

contributed

by a Partner at the

beginning.

ii. Additional Capital

introduced by aPartner during the

Year.

iii. Part of Capital

amount Withdrawn

during the year.

Transactions

i. Amount

withdrawn

by Partners from

the business for

their personal use i.e.

Drawings in form ofCash.

ii. Goods taken over

by Partners from the

business for their

personal use. i.e.

Drawing in form of

Goods.

iii. Interest on Partners

Capital.

iv. Interest on Partners

Drawings.

v. Salalry orCommission to

Partners.

vi. Distribution of

Net Profit or Net

Loss of the

firm.


Transactions

i. Amount

contributed

by a Partner at the

beginning / Opening

Capital Balance of

Partners.ii. Additional Capital

brought by Partners.

iii. Salary or

Commission

Payable to partners.

iv. Interest on Capital.

v. Drawings and

Interest on

Drawings.

vi. Withdrawal of

Capital amount.

vii. Distribution of NetProfit or Net Loss

of the firm.

12th commerce book keeping accountancy

Documents