1. business and industrial
2. company
3. earnings

CHOITHRAM SCHOOL MANIKBAGH INDORE
Summer Assignment 2015-16
Accountancy (XII)
Fundamentals of Partnership & Goodwill
Profit And Loss Appropriation Account
1. 1Liability of a partner is unlimited. Comment.
2. 2Why is it that Capital Accounts of a partner do not show a ‘Debit Balance’ inspite of regular and consistent losses year
after year?
3. 3Would a Charitable dispensary run by 8 members be deemed a partnership firm? Give reasons in support of your
answer.
4. 4X, Y and Z are partners in a firm sharing profits equally. On 1st January, 2012, X introduced Rs.4,00,000 as further
capital as the firm was in need of additional fund. Y and Z decided to allow interest at 6% p.a. on additional capital of
X. Which value has been fulfilled by them ?
Ans. Just and equitable.
5. P and Q are partners with capitals Rs.1,50,000 and Rs.1,00,000 respectively. Interest on capital is allowed @9% p.a.
Their profit for the year before allowing interest on capital is Rs.15,000.
Show relevant accounts to represent IOC of partners when
a) Partnership deed is silent about the treatment of IOC
b) IOC is charged against profit as per deed.
Ans. a) IOC P- Rs.13,500, Q – Rs.9,000; b) Loss P- Rs.7,500, Q – Rs.7,500
6. 6A and B are partners sharing profits in the ratio 3;2. Their capital balances on 1st April 2013 were Rs.70,000 and
Rs.50,000. On 1st July,2013, A introduced Rs.30,000 and B introduced Rs.10,000 only. Interest on capital is allowed at
10% p.a.. Calculate IOC assuming that books are closed on 31 st march every year. Ans. A Rs.9,250; B Rs.5,750
7. 7A and B are partners sharing profits and losses in the ratio 4:3. Their capital on 31 st December, 2014 were Rs.3,00,000
and Rs.2,00,000 respectively. During the year, their drawings were Rs.50,000 each. The firm earned a profit
amounting to Rs.70,000 for the year ending 31 st December , 2014. Later on they decided that interest on their capital
be charged at 10% p.a. Compute interest on capital. Ans. A Rs.31,000; B Rs.22,000
8. 8P and Q are partners in a firm and contributed Rs.1,00,000 and Rs.50,000 respectively. They have no deed. Later on,
they have dispute on the following matters:
(i)
i) P wants that profits be shared in their capital ratio.
(ii)
Ii) P also advanced Rs.40,000 as loan to firm and claims that he should be given interest on loan @10% p.a. which is
the market rate.
(iii)
Iii) Q claims salary of Rs.3,000 p.m. as he is also performing accounts work besides the firms usual work.
(iv)
iv) They also want interest on capital @6% p.a.
Do you agree with them ? If not, what should be done?
Ans. (i) Equal ratio; (ii) Int.on loan @ 6% p.a. (iii) No salary (iv) No IOC
9. 9
(A) Compute Interest on Drawings of Rajesh @ 10% p.a. in the following alternate cases for the year ended 31 st
March, 2014
(i)
If his drawings during the year was Rs.40,000
(ii)
If he withdrew Rs.2,500 p.m. during the year.
(iii)
If he withdrew Rs.3,000 p.m. for first six months in the beginning of each months and he withdrew
Rs.3,000 p.m. for the later 6 months at the end of each months.
Ans.IOD Case (i) Rs,2,000; (ii) Rs.1,500; (iii) Former six months –Rs. 1,425, later six months Rs.1,800 i.e Total Rs.1,800
(B) X and Y are partners sharing profits equally. X withrew Rs.20,000 and Y withdrew Rs.25,000 during the year
ending 31st December, 2014. As per partnership deed, interest on drawing is computed at 6%. Find the
interest on drawings.
Ans. IOD X Rs.1,200; Y Rs.1,500
(C) X,Y and Z are three partners sharing profits in the ratio of 3:2:1. They withdrew Rs.5,000 each on quarterly
basis. Compute interest on drawing for the year 2014 @ 9% p.a. for partners in the following cases :
(i)
X withdrew at the beginning of each quarter
10.
11.
12.
13.
14.
15.
(ii)
Y withdrew at the middle of each quarter
(iii)
Z withdrew at the end of each quarter
Ans. IOD Case (i) Rs,1,125; (ii) Rs.675; (iii)Rs.900
(D) A,B and Care three partners sharing profits in the ratio of 3:2:1. A withdrew Rs.500 p.m. at the beginning of
each month, B withdrew Rs.700 p.m. at the middle of each month, C withdrew Rs.800 p.m. at the end of each
month,. Compute interest on drawing for the year 2014 @ 12% p.a. for partners.
Ans. IOD Case A -Rs,390; B - Rs.462; C - Rs.576
1Compute interest on drawing @10% p.a. for the year 2014 if Amit withdrew following amounts during 2014 by
0product method:
February 1
Rs.3,000
April 30
Rs.4,000
June1
Rs.3,000
September 30
Rs.5,000
November 1
Rs.7,000
December 31
Rs.2,000
Ans. Rs.958.33
1A an A and B are partners sharing profits in the ratio of 3: 2 with capitals of Rs. 5, 00,000 and
1Rs. 3, 00,000 respectively. Interest on capital is agreed @ 6% p.a. B is to be allowed an annual salary of Rs. 25000.
During 2006, the profits of the year prior to calculation of interest on capital but after charging B's salary amounted to
Rs. 1,25,000. A provision of 5% of the profits is to be made in respect of Manager's commission. Prepare an account
showing the allocation of profits and partners' capital accounts.
Ans. Manager Commission Rs.7,500; Share of Profit A- Rs.41,700; B – Rs.27,800; Balance A Rs.5,71,700, B Rs. 3,70,800
1X and Y are partners sharing profits and losses in the ratio of 3: 2 with capitals of Rs. 50,000 and Rs. 30,000
2respectively. Each partner is entitled to 6% interest on his capital. X is entitled to a salary of Rs. 800 per month
together with a commission of 10% of net 'Profit remaining after deducting interest on capitals and salary but before
charging any commission. Y is entitled to a salary of Rs. 600 per month together interest with-a commission of 10% of
Net profit remaining after deducting interest on capitals and salary and after charging all commissions. The profits for
the year prior to calculation of interest on capital but after charging salary of partners amounted to Rs. 40,000.
Prepare partners' Capital Accounts:(i)
When capitals are fixed, and
(ii)
When capitals are. Fluctuating.
Ans. Share of Profit X – Rs.9033, Y Rs.6022; (i) Balance of Capital a/c’s X Rs.50,000 and Y Rs.30,000, Current a/c X
Rs.23,473 , Y Rs.16,527; (ii) Balance of Capital a/c’s X Rs.73,473 and Y Rs.46,527
1A and B started business on July 1,2004, each partner contributed Rs.1,50,000 as his share of capital. Three months
3later, on October 1, 2004. B makes an additional contribution of Rs.1,00,000 which is treated as a loan. The profit for
the period for the period ending March 2005 was Rs.85,0000 before charging any interest. The partners had drawn
Rs.24,000 each on 1st Jan.2005. Prepare the profit and Loss appropriation account for the period ended March 31,
2005. Ans. IOL Rs.3,000; Profit to A and B Rs.41,000 each.
1A and B are partners in a firm sharing profits in the ratio of 3:1 contributing Rs.1,10,000 each as their capital on 1 st
4January, 2014. The partnership deed provides the following :(i)
Partners are allowed interest on capital @ 5% p.a. and are charged interest on drawings @ 6% p.a.
(ii)
A is entitled to remuneration of 10% of net profit for securing contracts from customers.
(iii)
B is also entitled to a commission of 10% of net profits after charging clause (ii) of deed.
(iv)
A is entitled to rent of Rs.1,000 per month for the use of is premises by the firm.
(v)
During the year A withdrew Rs.350 at the beginning of every month and B withdrew Rs.550 at the end of
every month.
The profit of the firm during 2014 before making above adjustments was Rs.1,11,000. Prepare profit and Loss
Appropriation Account for the year 2014.
Ans. IOD A Rs,136.50, B Rs.181.50; Commission A Rs.9,900, B Rs. 8,910; Profit A Rs. 52,131, B Rs. 17,377
1P and Q are partners in a firm with capital of Rs. 3,00,000 and Rs.2,00,000 respectively. P gave a loan of Rs.1,50,000 to
5the firm. The profit of the firm before allowing interest on loan amounted to Rs.75,000 for the year ending 31 st
16.
a)
b)
c)
17.
a)
b)
c)
d)
e)
18.
19.
March, 2014. Show distribution of profit after considering the followings :
(i)
Interest on capital be allowed @ 5% p.a.
(ii)
Interest on drawings is charged @ 6% p.a. Drawings of P and Q during the year were Rs.50,000 and
Rs.40,000 respectively.
(iii)
P is allowed commission @1% on sales which is Rs.3,00,000
(iv)
Q is entitled to a commission @ 5% of net profits after charging commission of P and his own.
(v)
10% of divisible profits be transferred to Reserve account.
Ans. IOL Rs.9,000; Commission P Rs.3,000, Q Rs.3,000; Reserve Rs.3,770; Profit P & Q Rs.16,965 each.
1Ram and Gopal were partners in a firm sharing profits in the ratio of 3:2. On 1/1/2014 their fixed capitals were
6Rs.1,00,000 and Rs.1,50,000 respectively. On 31/3/2014 they decided that their total capital (fixed) should be
Rs.3,00,000. It was further decided that the capitals(fixed) should be in their profit sharing ratio. Accordingly they
introduced or withdrew the necessary capital. The partnership deed provided the following :
Interest on Capital @12% p.a.
Interest on Drawing @18% p.a.
Monthly Salary to Ram @ Rs.2,000 per month and to Gopal @ Rs.3,000 per month.
The drawings are
Date
Ram
Gopal
1/7/2014
Rs.10,000
Rs.12,000
30/9/2014
Rs.15,000
Rs.12,000
The profit earned by the firm for the year ended 31/12/2014 was Rs.2,00,000. 10% of this profit was to be kept in a
reserve. You are required to Prepare Profit and Loss appropriation account, Partners’ Capital accounts and Partners’
Current account.
Ans. Profit of P & L app. a/c Rs. 88,695; Bal of Partners’ Capital a/c Ram Rs.1,80,000, Gopal Rs.1,20,000;Bal of
Partners’ Current a/c Ram Rs.69, 842, Gopal Rs.61,158.
1The partners A and B decided to appropriate profits of the firm on the following terms respectively:
7Interest is payable on capital at 5% per annum.
Both A and B will get remuneration at Rs.2,000 and Rs.1,000 per month respectively.
Interest is payable on loan contributed by A Rs.20,0000 on 1/7/2014 at 6% p.a.
Interest on drawings of partners is 2% at an average rate. (Drawings during the year of A Rs.6,000 and B Rs.4,000
respectively).
Profit sharing ratio between A and B is 3:2.
For the year ending on 31/3/2015, the total net profits of the firm is shown at Rs.70,000. On 1/4/2014 the capital
balances of A and B were Rs.50,000 and Rs.40,000 respectively. In the firm’s book show the Journal entries, Profit and
Loss appropriation account, Partners’ Capital accounts and Partners’ Loan account.
Ans. Share of profit A Rs.17,280, B Rs.11,520; Bal of Partners’ Capital a/c A Rs.87,660 B Rs.61,440; Bal. Loan a/c Rs.
20,900
1A, B and C are partners with a fixed capital of Rs.2,00,000, Rs.1,50,000 and Rs.1,00,000 respectively. They share
8profits upto Rs.36,000 in their capital ratio and rest in equal proportion. A advanced Rs.50,000 as loan. The
partnership deed provided as under :
(i)
Interest on capital @ 5% p.a. and interest on drawings @3%
(ii)
Drawings of partners wereRs.20,000 each.
(iii)
B was entitled to rent @ Rs.1,000 p.m. for providing his premises to the firm.
(iv)
C was entitled to commission of 5% on net profit after charging his commission.
The net profit before these adjustments for the year ending 31st March, 2014 was Rs.99,000 assuming that current
account balances of partners were : A – Rs.5,000(Cr.); B – Rs.4,000(Cr.) and C – Rs.3,000(Dr.). Prepare Profit and Loss
appropriation account, Capital and Current accounts of the partners. Ans. Commission for C Rs.4,000; IOD A, B and CRs.600 each, profit A Rs.23,766, B Rs. 19,767, C Rs. 15,767
1A and B are partners sharing profits in the ratio of 3:2 with capitals of Rs.50,000 and Rs.30,000 respectively. Interest
9on capital is agreed @6% p.a. B is to be allowed an annual salary of Rs.2,500. During 1995, profits of the year prior to
calculation of interest on capital but after charging B’s salary amounted to Rs.12,500. Manager is to be allowed a
commission of 5% on the profits remaining after deducting salary and interest on capitals but before charging such
commission. Prepare an account showing allocation of profits and partners’ capital accounts.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
Ans. Manager commission Rs. 385; Profit A Rs.4,389, B Rs.2,926.
2Ram, Rahim and Henry were three friends and belong to different religions, They decided to form partnership
0business of selling Agmark food products. Ram was financially not so strong, so it was decided to admit him without
contributing any capital, On 1.4.2014 all of them formed a partnership on following terms :
(i)
Rahim will contribute Rs.1,50,000 and Henry Rs.1,00,000
(ii)
Partners will share profits equally.
(iii)
The profits for the year ended 31/3/205 was Rs.4,20,000.
(a) Identify the values according to you motivated people of different religions to form partnership firm.
(b) Identify the values according to you motivated them to provide Agmark goods.
(c) Identify the values according to you motivated them to share profits equally.
(d) Prepare Profit and Loss Appropriation account for the year ending 31st march 2015.
Ans. (a) Secularism; (b) Responsibility; (c) Empathy; (d) Profit each partner Rs.1,40,000
Adjustment Related IOC
Asha, Bela and Cheena were sharing profits equally. Their capitals were ` 40,000; ` 20,000 and ` 30,000 respectively.
After closing the accounts for the year 2004, it was found that the interest on capital @ 10% p.a. was not allowed
before distributing the profits. It was decided to pass a single adjusting entry to rectify the accounts of the year 2004.
Journalise.
Asha Cr. By Rs.1,000 and Dr. Bela by Rs. 1,000.
Gupta and Sarin are partners in a firm sharing profits in the ratio of 3:2. Their fixed capitals are: Gupta 2,00,000, and
Sarin 3,00,000. After the accounts for the year are prepared it is discovered that interest on capital @10% p.a. as
provided in the partnership agreement, has not been credited in the capital accounts of partners before distribution
of profits. Record adjustment entry to rectify the error.
Azad and Benny are equal partners. Their capitals are Rs. 40,000 and Rs. 80,000, respectively. After the accounts for
the year have been prepared it is discovered that interest at 5% p.a. as provided in the partnership agreement, has
not been credited to the capital accounts before distribution of profits. It is decided to make an adjustment entry at
the beginning of the next year. Record the necessary journal entry. (Ans : Azad (Dr.)1,000 and Benny (Cr.)1,000)
Krishna, Sandeep and Karim are partners sharing profits in the ratio of 3:2:1. Their fixed capitals are: Krishan Rs.
1,20,000, Sandeep 90,000 and Karim 60,000. For the year 2006-07, interest was credited to them @ 6% p.a. instead of
5% p.a. Record adjustment entry
Ram, Shyam and Mohan are partners in a firm sharing profits and losses in the ratio of 2:1:2. Their fixed capitals were
` 3,00,000, ` 1,00,000 and ` 2,00,000 respectively. Interest on capital for the year 1996 was credited to them @ 9%
p.a. instead of 10% p.a.. Showing your working notes clearly, pass necessary adjusting Journal entry.
Ans: Shyam & Mohan Dr. By 200 & 400 ; Ram ( Cr.) by 600
Leela, Meera and Neha are partners and have omitted interest on capital @9% p.a. for three years ended March 31,
2007. Their fixed capitals on which interest was to be allowed throughout were: Leela Rs. 80,000, Meera Rs. 60,000
and Neha Rs. 1,00,000. Their profit sharing ratio during the last three years were:
Year
Leela
Meera
Neha
2006-07
2
2
2
2005-06
4
5
1
2004-05
1
2
2
Record adjustment entry
Anju, Manju and Mamta are partners whose fixed capitals were Rs. 10,000, Rs. 8,000 and Rs. 6,000, respectively. As
per the partnership agreement, there is a provision for allowing interest on capitals @ 5% p.a. but entries for the
same have not been made for the last three years. The profit sharing ratio during there years remained as follows:
Year Anju Manju Mamta 2004 4 3 5 2005 3 2 1 2006 1 1 1 Make necessary and adjustment entry at the beginning of
the fourth year i.e. Jan. 2007. (Ans : Mamta (Dr.) Rs. 200, Anju (Cr.) Rs. 100 and manju (Cr.) Rs. 100)
M, N and T are partners in a firm sharing profits and losses in the ratio of 2:1:2. Their fixed capitals were ` 5,00,000,
`3,00,000 and ` 2,00,000 respectively. Interest on capital for the year 1996 was credited to them @ 8% p.a. instead of
10% p.a.. Showing your working notes clearly, pass necessary adjusting Journal entry.
a.
Wrong Division of Profit
The firm of Harry, Porter and Ali, who have been sharing profits in the ratio of 2 : 2 : 1, have existed for same years.
30.
31.
32.
33.
34.
35.
36.
37.
Ali wants that he should get equal share in the profits with Harry and Porter and he further wishes that the change in
the profit sharing ratio should come into effect retrospectively were for the last three year. Harry and Porter have
agreement on this account. The profits for the last three years were:
Year
Rs.
2003-04
22,000
2004-05
24,000
2005-06
29,000
Show adjustment of profits by means of a single adjustment journal entry.
(Ans : Harry (Dr.) Rs.5,000, Porter (Dr.) Rs.5,000 and Ali (Cr.) Rs.10,000)
X, Y and Z are partners in a firm who share profits in the ratio of 2:3:5. The firm earned a profit of ` 1,50,000 for the
year ended December 31,2004. The profit by mistake was distributed among X, Y and Z in the ratio of 3:2:1
respectively. This error was noted only in the beginning of the next year.
Pass necessary Journal entry to rectify the error.
What values do you find in the above question?
Ans: X & Y Dr. By Rs. 45,000 and Rs. 5,000; Cr.Z by Rs. 50,000.
Adjustment Related IOD
Nusrat, Sonu and Himesh are partners sharing profits and losses in the ratio of 5 : 3 : 2. The partnership deed provides
for charging interest on drawing’s @ 10% p.a. The drawings of Nusrat, Sonu and Himesh during the year ending
December 2004 amounted to Rs. 20,000, Rs. 15,000 and Rs. 10,000 respectively. After the final accounts have been
prepared, it was discovered that interest on drawings has not been taken into consideration. Give necessary adjusting
journal entry
Sonu and Himanshu Dr. By Rs.150 and Rs. 100. Nusrat Cr. By Rs. 250.
E, M and A, and partner , it was discovered that interest on drawings had been omitted.. The drawings during the
year were E Rs. 20,000; M Rs. 15,000 and A, Rs. 9,000. Interest on drawings chargeable to partners were E Rs, 500, M
Rs. 360 and A Rs. 200. The profit sharing ratio was 3 : 2 : 1. Pass necessary adjustment entries.
A , B & C shares profit and loss in equal ratio. After preparing final accounts they come to know that interest on
drawings were not taken into consideration so far. Interest on drawings were Rs. 1,000; Rs. 2,000 & Rs. 3,000
respectively. You are required to pass adjustment entry.
Comprehensive Questions
The net profit of X, Y and Z for the year ended March 31, 2006 was Rs. 60,000 and the same was distributed among
them in their agreed ratio of 3 : 1 : 1. It was subsequently discovered that the under mentioned transactions were not
recorded in the books : (i) Interest on Capital @ 5% p.a. (ii) Interest on drawings amounting to X Rs. 700, Y Rs. 500 and
Z Rs. 300. (iii) Partner’s Salary : X Rs. 1000, Y Rs. 1500 p.a. The capital accounts of partners were fixed as : X Rs.
1,00,000, Y Rs. 80,000 and Z Rs. 60,000. Record the adjustment entry.
(Ans : X Dr. Rs.2,700 , Y credit Rs.2,600 and Z credit Rs.100]
Mohan, Vijay and Anil are partners, the balance on their capital accounts being Rs. 30,000, Rs. 25,000 and Rs. 20,000
respectively. In arriving at these figures, the profits for the year ended March 31, 2007 amounting to Rupees 24,000
had been credited to partners in the proportion in which they shared profits. During the tear their drawings for
Mohan, Vijay and Anil were Rs. 5,000, Rs. 4,000 and Rs. 3,000, respectively. Subsequently, the following omissions
were noticed: (a) Interest on Capital, at the rate of 10% p.a., was not charged. (b) Interest on Drawings: Mohan Rs.
250, Vijay Rs. 200, Anil Rs. 150 was not recorded in the books. Record necessary corrections through journal entries.
(Ans : Debit Anil’s Capital Account by Rs. 450 and Credit Mohan’s Capital Account by Rs. 450)
QThe partners of the firm distributed the profits for the year ended 31st March,2003 Rs 1,40,000 in the ratio of 2:2:1
1without providing for the following adjustments:
i)
A and B were entitled to a salary of Rs 1,500 per quarter.
ii)
C was entitled to a commission of Rs 8,000.
iii)
A and C had guaranteed a minimum profit of 50,000 p.a to B
iv)
Profits were to be shared in the ratio of 3:3:2.
Pass necessary journal entry for the above adjustments in the books of the firm.
Ans : Rs 5,000 deficiency to be borne by A Rs 3,000 and C Rs 2,000
QA,B and C entered into partnership on October 1,2004 to share profits and losses in the ratio of 3:2:1. A however,
38.
39.
40.
41.
42.
43.
44.
2personally guaranteed that C’s share of profit after charging interest on capital at 5% p.a would not be less Rs 30,000
in any year. The capital contributions were A Rs 3lakhs, B Rs 2lakhs and C Rs 1 lakh. The profits for the period ended
March 31,2005 were Rs 1,20,000. Show the distribution of profits.
No guarantee required as for 6 months C’s share is coming 20,000 which is more than guaranteed amount
QX,Y and Z are partners sharing profits and losses in the ratio of 3:2:1. X personally guaranteed Y that his share of
3profits, after charging interest on capital @ 8% p.a would not be less than Rs 25,000 in any year. The capitals of the
partners are X- Rs 2,00,000, Y-Rs 1,40,000 and Z Rs 1,60,000.
The profits ended 31st March 2014 amounted to Rs 1,00,000 before providing for interest on capital. Show the profit
and loss Appropriation Account.
Ans Rs 5,000 to be borne by X
QX,Y and Z are partners in a firm. Their profit sharing ratio is 3:2:1. However Z, is guaranteed a minimum amount of Rs
415,000 as share of profit every year. Any deficiency arising on that account shall be met by Y. The profits for the two
year ended 31st March, 2013 and 2014 were Rs 60,000 and Rs 90,000 respectively. Prepare profit and loss
Appropriation Account for the two years.
Ans I Year Rs5,000 , II year not required
QA, B and C are partners sharing profits and losses in the ratio of 5:3:2. Their capitals are Rs 80,000; Rs 50,000 and Rs
540,0000 respectively. Each partner is entitled to interest on capitals @ 10% p.a. B is entitled to salary of Rs 10,000 p.a
and C is entitled to a commission of Rs 4,000 p.a. A guaranteed that a firm would earn a profit of Rs 1,20,000 before
allowing interest on capital, partner’s salaries and commission. The actual profit for the year 2014 before commission,
salaries and interest amounted to Rs 1,12,000. Prepare profit and Loss Appropriation A/C
Ans Rs 8,000
QA and B are in partnership sharing profits and losses in the ratio of 4:1. They decided to admit C, their manager, as a
6partner with effect from 1st January, 2014 for 1/8 share in profits. C, as a manager was getting salary of Rs 9,600 per
annum and commission of 5% of the net profits after charging such salary and commission.
In, terms of partnership deed, any excess amount which C will be entitled to receive as a partner over the amount
which would have been due to him as a manager, would be personally borne by A out of his share of profit.
Ans Rs 1,350 borne by A
QA,B and C are partners in a firm sharing profits and losses in the ratio 3:2:1. Their capitals were Rs 1,00,000, Rs 75,000
7and Rs 50,000 respectively. They agreed to allow interest on capital @ 10% p.a and agreed to charge interest on
drawing @ 10% p.a Their drawings for the year were Rs 10,000 Rs 8,000 and Rs 6,000 respectively.
C was getting a salary of Rs 2,000 p.m and in return, he guaranteed that firm,s profit would not be less than Rs 80,000
before charging or allowing interest or salary payable to C Actual profit for the year 2007 was Rs 75,000.
Prepare P& L Appropriation A/C and Partner’s capital A/C.
Ans Rs. 5,000
QRam and Shyam were partners sharing profits in the ratio of 2:1. On 31st December 2012 they decided to admit Hari
8(their clerk) into the firm. It was also decided that he should be treated as a partner from 1.1.2010.While serving as a
clerk Hari has given a loan of Rs 50,000 to the firm on which he was getting interest @ 12% per annum. As a clerk he
was getting the annual salary of Rs 55,000 per annum.
According to the new agreement, Hari was to be given annual salary of Rs 30,000 and 1/6 share of the profits of the
firm. His loan was converted as his capital on which he was also eligible to receive interest @ 5% per annum. Profits
for the years 2010, 2011, and 2012 were Rs 2,00,000 , Rs 3,00,000 and Rs 1,50,000 respectively.
Record the necessary entries to give effect these arrangements. And also Identify the value for admitting Hari as a
partner.
Ans Rs 37,083 to be borne by A Rs 24,722 and Rs 12,361 by B
QA,B,C and D are partners having capitals of Rs 2,00,000; Rs 1,50,000; Rs 1,00,000 and Rs 50,000 respectively. They
9share profits and losses in the ratio of 3:2:2:1. They have agreed upon the following terms:
i)
Partners are entitled to interest on capital @ 8% p.a
ii)
C will get salary @ Rs 5,000 per month.
iii)
B,S share of profit excluding interest on capital has been guaranteed to be not less than Rs 2,60,000
iv)
D,s share of profits including interest on capital has been guaranteed by A to be not less than Rs 1,10,000.
The profits for the year ended 31st March 2014 were Rs 9,00,000 before any appropriation. Prepare Profit and
Loss Appropriation Account.
Ans Deficiency of Rs 60,000 to be borne by A Rs 30,000; CRs 20,000 and D Rs 10,000
45. QA, B and C are partners. They admit D and guarantee that his share of profit will not be less than Rs 20,000. Profits to
1be shared as 4:3:3:2 respectively. Total profits were Rs 96,000. It was agreed that excess payable to D over his share
0will b borne by A,B and C in the ratio of 3:2:1.
a) Identify the values which according to you motivated the partners to give guarantee.
b) Prepare P&L Appropriation A/C.
Ans a)Safety and protection
c) Rs 4,000 To be borne by A- 2,000 B-1,333and C- 667
Goodwill
46. According to partnership deed, goodwill of a firm is valued at two year’s purchase of the average profit of the last 3
years’. The profits of the last 3 years as follows : Rs.50,000; Rs.45,000 and Rs.61,000. Calculate the value of goodwill of
the firm. Ans. Rs.1,04,000
47. A,B and C are partners sharing profits and losses equally. They agree to admit D for equal share. For this purpose value
of goodwill is to be calculated on the basis of four years’ purchase of average profit of last five years. These profits were
:
Year
2009
2010
2011
2012
2013
Profit / Loss (Rs. ) Rs.30,000
Rs.70,000 Rs.1,00,000
Rs.1,40,000
Rs.1,20,000
(Profit)
(Profit)
(Profit)
(Profit)
(Loss)
On 1st January, 2013, a moped costing Rs.20,000 was purchased and debited to travelling expenses account on which
depreciation is to be charged @ 25%. Calculate value of goodwill after adjusting the above. Ans. Rs.1,88,000
48. A and B are partners sharing profits and losses in the ratio of 3:2. They decided to admit C as a partner from 1st April,
2014, for this goodwill of the firm will be valued at two years’ purchase of three years’ average profits of the firm.
Profits of the previous three years ended 31st March were :
2014 – Profit Rs.30,000(after debiting loss of stock by fire Rs.40,000)
2013 – Loss Rs.80,000 (includes voluntary retirement compensation paid Rs.1,10,000)
2012 – Profit Rs.1,10,000 (including a profit of Rs. 30,000 on the sale of fixed assets )
You are required to value the goodwill. Ans. Rs.1,20,000
49. A and B are partners in a firm sharing profits and losses in the ratio of 2:1. They decide to take C into partnership for
1/4th share on 1st January, 2015. For this purpose, goodwill is to be valued at four times athe average annual profits of
the previous foru or fivr yrears whichever is higher. The agreed profits for goodwill purpose of the past five years are :
2010 – Rs.14,000; 2011 – Rs.15,500; 2012 – Rs.10,000; 2013 – Rs.16,000; 2014 – Rs.15,000. Find goodwill. Ans. Rs.
56,500
50. Find the goodwill of a firm on the basis of two years’ purchase of the weighted average profit of the last 4 years. The
profits of the last 4 years were :
2011 – Rs.20,000; 2012 – Rs.30,000; 2013 – Rs.25,000; 2014 – Rs.38,000
The weights assigned were 1, 2, 3 and 4 respectively.
On scrutiny, it was found that :
On 1st January, 2013 heavy repair made on plant amounting to Rs.8,000 was charged to revenue account. The said sum
is agreed to be capitalized for goodwill computation. This is subject to 10%p.a. depreciation on straight line method.
The closing stock of 2012 and 2014 were overvalued by Rs.1,000 and Rs.2,000 respectively.
To cover the management cost, an annual charge of Rs. 3,000 should be made for goodwill valuation. Ans. Rs. 57,680
51. The profits and losses for the previous years are 2009-Profit Rs 20,000; 2010-Loss Rs 34,000;
2011-Profit-Rs 1,00,000; 2012-Profit Rs 1,50,000. The average capital employed in the business
is Rs Rs 4,00,000. The rate of interest of interest expected from capital invested in that business is 10% . The
remuneration of partner is estimated to be Rs 12,000 p.a. Calculate the value of goodwill on the basis of 2
years’purchase of Super profit based on the average of 3 years. Ans Goodwill Rs 40,000.
52. On 1st April 2012, an exiting firm had assets of Rs 1,50,000, including cash of Rs 10,000. Its Creditors amounted to Rs
10,000 on that date. The firm had a Reserve Fund of Rs 20,000 whil partners’capital accounts showed a balance of Rs
1,20,000. If the normal rate of return is 20% and the goodwill of the firm is valued at Rs 48,000 at four years purchase
53.
54.
55.
56.
57.
58.
59.
of super profits, find the average profits per year of the exiting firm. Ans G.W = Rs 40,000
The average profit earned by a firm is Rs 60,000 including abnormal income of Rs 4,000 on recurring basis. Firm had a
Fixed assets of Rs 3,00,000 and current assets of Rs 60,000. Its creditors and other liabilities were Rs 1,40,000. Calculate
goodwill of the firm based on three times of super profits if the normal rate of earning is 15%. Ans Rs 69,000
A firm earned net profits during last five years as follows:
I-Rs 7,000; II Rs 6,500; III Rs 8,000, IV Rs 7,500 V- Rs 6,000.
The capital invested in the firm is Rs 40,000. A fair return on the capital in the market is 12%. Find out the value of the
goodwill of the business if it is based on three year’s purchase of average super profits of past 5 yrs. Ans G.W= Rs 6,600
The capital of a firm consisting of partners A and B was Rs 1,50,000 on 31st December, 2008. They had Rs 20,000 as
reserves on that date.
If the goodwill of the firm was valued at Rs 42,000 on the basis of 3 years purchase of super profit and 10% was
considered as fair return, find the average profit earned by the firm. Ans G.W= 31,000
Capitalization Method
The books of Ram and Bharat showed that the capital employed on 31.12.2002 was Rs. 5,00,000 and the profits for the
last 5 years : 2002 Rs. 40,000; 2003 Rs. 50,000; 2004 Rs. 55,000; 2005 Rs. 70,000 and 2006 Rs. 85,000. Calculate the
value of goodwill on the basis of 3 years purchase of the average super profits of the last 5 years assuming that the
normal rate of return is 10%?
(Ans : Rs. 30,000)
Capital employed in a business is Rs. 2,00,000. The normal rate of return on capital employed is 15%. During the year
2002 the firm earned a profit of Rs. 48,000. Calculate goodwill on the basis of 3 years purchase of super profit?
(Ans : Rs. 54,000)
The average net profits expected of a firm in future are 68,000 per year and capital invested in the business by the
firm is 3,50,000. The rate of interest expected from capital invested in this class of business is 12%. The remunerating
of the partners is estimated to be 8,000 for the year. You are required to find out the value of goodwill on the basis of
two years’ purchase of super profits.( Ans : 36,000)
A business has earned average profit of Rs. 4,00,000 during the last few years and the normal rate of return in
similar business is 10%. Find out the value of goodwill by
(i)
(ii)
Capitalisation of Super Profit
Super profit method if the goodwill is valued at 3years’ purchase of super profits.
The assets of the business were Rs. 40,00,000 and its external liabilities Rs. 7,20,000.
(Ans. 2,16,000)
60. A business has earned an average profit of Rs profit of Rs.60,000 during the last few years and the normal rate of return
in similar type of business is 10 % . Find out the goodwill by capitalization method assuming that the firm owns total
assets worth Rs. 6,50,000 including their in a goodwill of Rs. 50,000 and outside liabilities worth Rs. 1,00,000. Also show
that goodwill accounts to be the same under both average profit basis and super profit basis of capitalization.