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Questions and Answers
Harshad and Dhiman have no partnership deed. Harshad provided a loan of ₹1 lakh to the firm. At what annual rate is Harshad entitled to receive interest on the loan?
Harshad and Dhiman have no partnership deed. Harshad provided a loan of ₹1 lakh to the firm. At what annual rate is Harshad entitled to receive interest on the loan?
- 10%, as claimed by Harshad
- No interest, as no partnership deed exists
- 6%, as per the Partnership Act (correct)
- Interest as decided by court
In the dispute between Harshad and Dhiman, how should the profit of ₹1,80,000 be distributed according to the Partnership Act, given the absence of a partnership deed?
In the dispute between Harshad and Dhiman, how should the profit of ₹1,80,000 be distributed according to the Partnership Act, given the absence of a partnership deed?
- Harshad gets 75% and Dhiman gets 25%
- In proportion to their capital contributions (4:1)
- Equally between Harshad and Dhiman (correct)
- Based on who managed the business during the period
Rakshit and Malik are partners. Rakshit's initial capital is ₹1,20,000 and Malik’s is ₹80,000. On December 1, Rakshit introduces additional capital of ₹80,000 and Malik introduces ₹20,000. If the interest on capital is 6% per annum, what is Rakshit's total interest on capital for the year?
Rakshit and Malik are partners. Rakshit's initial capital is ₹1,20,000 and Malik’s is ₹80,000. On December 1, Rakshit introduces additional capital of ₹80,000 and Malik introduces ₹20,000. If the interest on capital is 6% per annum, what is Rakshit's total interest on capital for the year?
- ₹4,800
- ₹7,200
- ₹5,200
- ₹8,800 (correct)
Rakshit and Malik are partners with a profit-sharing ratio of 4/5 and 1/5, respectively. They have a partnership deed that specifies 6% interest on capital. If Rakshit's total interest on capital is ₹8,800 and Malik's is ₹5,200, what is the total interest on capital that will be debited in the Profit and Loss Appropriation Account?
Rakshit and Malik are partners with a profit-sharing ratio of 4/5 and 1/5, respectively. They have a partnership deed that specifies 6% interest on capital. If Rakshit's total interest on capital is ₹8,800 and Malik's is ₹5,200, what is the total interest on capital that will be debited in the Profit and Loss Appropriation Account?
X and Y are partners with capital balances of ₹2 lakh and ₹1.5 lakh respectively. The partnership deed provides for 12% interest on capital. What is the total amount of interest on capital that will be credited to the partner's capital accounts?
X and Y are partners with capital balances of ₹2 lakh and ₹1.5 lakh respectively. The partnership deed provides for 12% interest on capital. What is the total amount of interest on capital that will be credited to the partner's capital accounts?
X and Y are partners. X receives a monthly salary of ₹5,000 and a commission of ₹17,500. Y receives a quarterly salary of ₹15,000. What is the total amount of salaries and commissions debited to the Profit and Loss Appropriation Account?
X and Y are partners. X receives a monthly salary of ₹5,000 and a commission of ₹17,500. Y receives a quarterly salary of ₹15,000. What is the total amount of salaries and commissions debited to the Profit and Loss Appropriation Account?
Kaju, Meva, and Peda are partners with fixed capitals and a profit-sharing ratio of 3:2:1. Interest on capital was wrongly credited at 6% instead of 9%. Which account will be debited for the adjustment entry related to Kaju?
Kaju, Meva, and Peda are partners with fixed capitals and a profit-sharing ratio of 3:2:1. Interest on capital was wrongly credited at 6% instead of 9%. Which account will be debited for the adjustment entry related to Kaju?
Kaju, Meva, and Peda are partners. Interest on capital was wrongly credited at 6% instead of 9%. What is the net effect of the adjustment on the firm's profit?
Kaju, Meva, and Peda are partners. Interest on capital was wrongly credited at 6% instead of 9%. What is the net effect of the adjustment on the firm's profit?
Ram, Mohan, and Sohan are partners. Ram withdraws ₹3,000 every month, and Mohan withdraws ₹4,000. The partnership deed is silent on interest on drawings, but 6% interest was charged. What is the correct treatment for the wrongly charged interest?
Ram, Mohan, and Sohan are partners. Ram withdraws ₹3,000 every month, and Mohan withdraws ₹4,000. The partnership deed is silent on interest on drawings, but 6% interest was charged. What is the correct treatment for the wrongly charged interest?
Ram, Mohan, and Sohan are partners sharing profits in the ratio 2:1:1. Interest on drawings was wrongly charged. What will be the impact of reversing the interest on drawings on Sohan's capital account?
Ram, Mohan, and Sohan are partners sharing profits in the ratio 2:1:1. Interest on drawings was wrongly charged. What will be the impact of reversing the interest on drawings on Sohan's capital account?
X and Y are partners with a profit-sharing arrangement where profits up to ₹1,75,000 are shared in their capital ratio, and remaining profits are shared equally. If the divisible profit is ₹2,11,250, how much profit will be allocated based on the equal-sharing arrangement?
X and Y are partners with a profit-sharing arrangement where profits up to ₹1,75,000 are shared in their capital ratio, and remaining profits are shared equally. If the divisible profit is ₹2,11,250, how much profit will be allocated based on the equal-sharing arrangement?
X and Y are partners, and the partnership agreement stipulates that 20% of the net profit (after interest on drawings but after all appropriations) is to be transferred to a general reserve. If the profit after all adjustments is ₹2,50,000, how much should be transferred to the general reserve?
X and Y are partners, and the partnership agreement stipulates that 20% of the net profit (after interest on drawings but after all appropriations) is to be transferred to a general reserve. If the profit after all adjustments is ₹2,50,000, how much should be transferred to the general reserve?
Kaju, Meva, and Peda are partners with fixed capitals. After the adjustments for interest on capital, it is determined that Kaju's account needs a credit of ₹12,000, Meva's a debit of ₹8,000, and Peda's a debit of ₹4,000. What combined journal entry accurately reflects this past adjustment?
Kaju, Meva, and Peda are partners with fixed capitals. After the adjustments for interest on capital, it is determined that Kaju's account needs a credit of ₹12,000, Meva's a debit of ₹8,000, and Peda's a debit of ₹4,000. What combined journal entry accurately reflects this past adjustment?
Ram, Mohan, and Sohan realize that they incorrectly charged interest on drawings, despite the partnership deed being silent on the matter. Mohan's share of the reversed amount is ₹1,440. If their profit-sharing ratio is 2:1:1, what is the total interest that needs to be reversed?
Ram, Mohan, and Sohan realize that they incorrectly charged interest on drawings, despite the partnership deed being silent on the matter. Mohan's share of the reversed amount is ₹1,440. If their profit-sharing ratio is 2:1:1, what is the total interest that needs to be reversed?
Harshad and Dhiman are in disagreement. Harshad insists on receiving 10% interest on capital, citing verbal agreements, but there is no written partnership deed. How should their disagreement be resolved regarding interest on capital based solely on the Partnership Act?
Harshad and Dhiman are in disagreement. Harshad insists on receiving 10% interest on capital, citing verbal agreements, but there is no written partnership deed. How should their disagreement be resolved regarding interest on capital based solely on the Partnership Act?
X and Y are partners contributing ₹2 lakh and ₹1.5 lakh respectively as capital. If the partnership stipulates interest on capital at 12% per annum, what is the total combined annual interest on capital for X and Y?
X and Y are partners contributing ₹2 lakh and ₹1.5 lakh respectively as capital. If the partnership stipulates interest on capital at 12% per annum, what is the total combined annual interest on capital for X and Y?
Kaju, Meva, and Peda initially recorded interest on capital at 6% but should have recorded it at 9%. What necessary recalculation must be performed to effectively rectify this error?
Kaju, Meva, and Peda initially recorded interest on capital at 6% but should have recorded it at 9%. What necessary recalculation must be performed to effectively rectify this error?
Ram, Mohan, and Sohan are partners, and it’s found that interest on drawings was incorrectly charged when the partnership deed was silent on it. What does this situation primarily require?
Ram, Mohan, and Sohan are partners, and it’s found that interest on drawings was incorrectly charged when the partnership deed was silent on it. What does this situation primarily require?
X and Y are partners. At what rate will interest be charged on drawings?
X and Y are partners. At what rate will interest be charged on drawings?
Rakshit and Malik are partners with capital balances of ₹1,20,000 and ₹80,000 respectively as on April 01, 2021. On December 01, 2021, Rakshit introduced additional capital of ₹80,000 and Malik introduced ₹20,000. The partnership deed provides for interest on capital at 6% per annum. What will be the total amount of interest on capital?
Rakshit and Malik are partners with capital balances of ₹1,20,000 and ₹80,000 respectively as on April 01, 2021. On December 01, 2021, Rakshit introduced additional capital of ₹80,000 and Malik introduced ₹20,000. The partnership deed provides for interest on capital at 6% per annum. What will be the total amount of interest on capital?
Flashcards
Interest on Capital Without a Deed
Interest on Capital Without a Deed
In the absence of a partnership deed, interest on partners' capital is not allowed according to the Partnership Act.
Interest on Partner's Loan (No Deed)
Interest on Partner's Loan (No Deed)
In the absence of a partnership agreement, interest on a partner's loan to the firm is allowed at a fixed rate of 6% per annum.
Profit Sharing (No Partnership Deed)
Profit Sharing (No Partnership Deed)
Without a partnership agreement, profits and losses are shared equally among partners, regardless of their capital contributions.
Partner's Salary (No Deed)
Partner's Salary (No Deed)
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Profit and Loss Appropriation Account
Profit and Loss Appropriation Account
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Interest on Capital
Interest on Capital
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Capital Contribution
Capital Contribution
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Partner's Capital Account
Partner's Capital Account
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Past Adjustments
Past Adjustments
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Drawings
Drawings
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Interest on Drawings
Interest on Drawings
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Partnership Deed
Partnership Deed
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Study Notes
Question 1: Dispute Among Partners
- Harshad and Dhiman are partners as of April 1, 2023, without a formal written agreement.
- Harshad and Dhiman's initial capital contributions were ₹4 lakh and ₹1 lakh, respectively.
- Harshad provided a loan to the firm on October 1, 2023.
- Harshad could not participate in business activities due to illness from August 1 onwards.
- The total business profit is ₹1,80,000.
- A dispute exists between partners regarding interest on capital and loan, along with profit distribution.
- Harshad's claim for 10% interest on capital lacks basis; only 6% interest on the loan is applicable because there isn't a partnership deed.
- Harshad suggests profit distribution based on capital contribution.
- Dhiman asserts profit should be split equally, correctly, due to absence of a partnership deed.
- Dhiman seeks ₹2,000 monthly as salary for covering business during Harshad's illness but will not receive without a deed.
- In the absence of a partnership deed, interest on capital is disallowed, but interest on loan is permitted at 6% per annum.
- Settle disputes by preparing a Profit and Loss (P&L) Appropriation Account.
- The P&L Appropriation Account starts with the net profit, from which interest on Harshad's loan is subtracted.
- The interest on the loan is calculated at 6% per annum on ₹1 lakh from October 1, 2023, for 6 months, totaling ₹3,000.
- The remaining profit of ₹1,77,000 is split equally between Harshad and Dhiman, with each getting ₹88,500.
Question 2: Interest on Capital Calculation
- Rakshit and Malik are partners sharing profits at a ratio of 4/5 and 1/5 respectively.
- As of April 1, 2021, both partners have capital.
- Total firm capital should be ₹3 lakh, distributed in a 2:1 ratio by December 1, 2021.
- A partnership deed allows interest on capital at 6% per annum.
- The task is to calculate the interest on capital for the year ending March 31.
- Interest on capital calculation involves opening capital, additional capital, and any withdrawals.
- Rakshit's opening balance: ₹120,000, Malik’s opening balance: ₹80,000 with a desire for their shares to be ₹2 lakh and ₹1 lakh.
- Additional capital: Rakshit - ₹80,000, Malik - ₹20,000.
- Interest on opening capital: Rakshit - 6% of ₹1,20,000 (₹7,200), Malik - 6% of ₹80,000 (₹4,800).
- Interest on additional capital (from Dec 1): Rakshit - ₹1,600, Malik - ₹400.
- Total interest on capital: Rakshit - ₹8,800, Malik - ₹5,200.
Question 3: Profit and Loss Appropriation and Capital Accounts
- X and Y are partners with capital balances on April 1, 2018.
- X and Y's capital is ₹2 lakh and ₹1.5 lakh as of March 1, 2023.
- X provided a loan of ₹50,000 to the firm on October 1.
- General reserve gets 20% of profit (before interest on drawings but after all appropriations).
- Interest on capital is 12% per annum.
- Interest on drawings is 10% per annum.
- X gets a monthly salary of ₹5,000, totaling an annual salary of ₹60,000.
- Y’s quarterly salary is ₹15,000, amounting to an annual salary of ₹60,000.
- X receives a 5% commission on sales; sales of ₹3,50,000 lead to a commission of ₹17,500.
- Profits are shared in the capital ratio up to ₹1,75,000; remaining profits are shared equally.
- Profit for the year ending March 31, 2024, is ₹4,61,000 before adjustments.
- Drawings for X and Y are provided.
- Creation of appropriation and partner's capital accounts is required.
- Interest on capital at 12% results in ₹24,000 for X and ₹18,000 for Y.
- After deducting the interest on X's loan of ₹1,500 from the net profit, the net profit becomes ₹4,59,500.
- Interest on drawings is calculated at 10% per annum on the provided drawings, resulting in ₹5,000 for X and ₹6,250 for Y.
- The total credit for interest on drawings is ₹11,250.
- Salaries of ₹60,000 and ₹90,000 are allocated to X and Y respectively.
- Commission for X amounts to ₹17,500.
- 20% of profit after appropriations allocated to general reserve is ₹50,000.
- Divisible profits for X and Y total ₹2,11,250, split at ₹1,18,125 and ₹93,125.
- Partner capital accounts should include opening balances, drawings, and adjustments.
- Include interest on capital, salaries, commissions, and divisible profits, while accounting for interest on drawings.
Question 4: Past Adjustments
- Kaju, Meva, and Peda are partners with a ratio of 3/6, 2/6, and 1/6 and fixed capital of ₹4 lakh, ₹2 lakh, and ₹2 lakh respectively.
- Interest on capital was wrongly credited at 6% instead of 9% on March 31, 2024.
- The presented question involves past adjustments correcting incorrectly applied interest on capital.
- The correction process involves reversing the incorrect 6% interest and applying the correct 9% interest.
- A creation of a statement showing adjustments and general entries is needed.
- Profit distribution should remain untouched, assuming it was already correct.
- Requires a statement showing adjustments, profit, and loss allocations.
- The incorrect interest on capital at 6% needs reversing: ₹24,000 for Kaju, ₹12,000 for Meva, and ₹12,000 for Peda.
- Next, offer the correct interest at 9%: ₹36,000 for Kaju, ₹18,000 for Meva, and ₹18,000 for Peda.
- Profits/losses are allocated in a 3:2:1 ratio.
- The revised amounts are ₹12,000 for Kaju, ₹8,000 for Meva, and ₹4,000 for Peda.
- Adjustments are routed through Meva's current account to Peda's current account.
- Journal entries should be generated to reflect all adjustments.
Question 5: Interest on Drawings and Partnership Deed Silence
- Ram, Mohan, and Sohan are partners at a ratio of 2/4, 1/4, and 1/4.
- Ram withdraws ₹3000 every month, and Mohan withdraws ₹4000, but specific withdrawal dates are not provided.
- The Partnership Deed remains silent on the matter, yet 6% interest on drawings was charged.
- Absence of instructions in the partnership deed means interest on drawings should not be levied.
- Wrongfully charged interest must be reversed, calling for calculations and a statement.
- Interest on drawings is calculated for Ram at ₹1,080 and for Mohan at ₹1,440.
- Create a statement that shows the incorrect interest charge reversal.
- Credit interest on drawings and debit the partner's account.
- Reversal of drawings involves a statement, crediting Ram and Mohan by ₹1,080 and ₹1,440, respectively.
- The resulting total balance from the total loss equals ₹2,520.
- For Ram, Mohan, and Sohan, in the ratio of 2:1:1, the reversal involves debits and credits of 1260, 630, 630, respectively.
- Adjustment to the capital of Ram and Sohan, with Mohan receiving the credit, and Ram and Sohan being in debit.
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