Partnership Fundamentals

Accounting for Partnership Firm
Fundamentals
Meaning and Definition
Partnership is the relation

between persons who have
agreed to share the profits of
a business carried on by all or
any of them acting for all
Features / Characteristics of Partnership
• Two or more Persons:

❑ Minor, Person of unsound mind and disqualified by Law
❑ Maximum 50, Minimum 2
• Agreement ( written agreement is known as Partnership Deed )
• Lawful Business
• Profit Sharing
• Business can be carried on by all or any of the partner acting for all
( Mutual Agency Relation)
Rights of Partners
• To Participate in Management
• To be consulted in business
• Not to allow admission of a partner
• To retire after giving notice
• To get indemnified for the expenses paid on behalf of firm
• To Share Profits and Losses in agreed Ratio
• To inspect Books of firm
• To act according to his best judgement in case of emergency
• To get Interest on loan given by partner to the firm
Partnership Deed
✔ Description of Partners ✔ Nature of Business
✔ Description of the firm ✔ Commencement of Partnership
✔ Principal place of business ✔ Capital Contribution
✔ Interest on Capital ✔ Settlement of Accounts
✔ Interest on Drawings ✔ Accounting period
✔ Profit sharing Ratio EQUAL ✔ Rights and Duties of Partners
✔ Interest on Loan advanced by partner 6% p.a. ✔ Duration of partnership
✔ Remuneration To partner ✔ Bank Account operations
✔ Valuation of goodwill ✔ Death of a Partner
✔ Valuation of assets ✔ Settlement of Disputes
Practice Questions
1. Maximum no of partner in a partnership Firm __________
2. Partnership cannot have a separate legal entity.( T/F)
3. There cannot be a partnership with an oral agreement between partners ( T /F )
4. Roshni and Gauri join hands to construct a charitable hospital to help the underprivileged section of the society. They are
said to be in partnership. ( T /F )
5. The business of a partnership concern may be carried on by all the partners or any one of them acting for all. This is called
the element of ________ between all the partners.
6. Persons who have entered into partnership with one another are individually called ________ and collectively
called________
7. Methods of settlement of dispute among the partners can’t be part of the partnership deed. ( T /F )
8. The business of a firm can be conducted even by one partner ( T /F )
9. A and B both agrees to admit C as new partner but D does not agree. So Because of majority decision, C will be admitted.
(T/F )
10. A partnership firm has 50 members. All the partners have agreed to admit Ram and Mohan as new partners. Can Ram
and Mohan be admitted ? Give reason in support of your answer.
PROFIT & LOSS APPROPRIATION A/c
What is Profit and Loss Appropriation Account ?
• It is a Nominal A/c
• It is prepared to show distribution/ appropriation of profit or loss
• It is prepared after Profit and Loss Account.
• It is extension of Profit and Loss A/c
• It is prepared by a partnership firm.
• This account depends on the provisions of Partnership deed
• It records all the appropriations ( Expenses / Incomes )
Journal Entries
For Transfer of profit from Profit and Loss A/c to Profit and Loss Appropriation Account
Profit and Loss A/c

Profit and Loss A/c Dr
To Profit and Loss
To Profit and Loss Appropriation A/c Appropriation A/c
(Net Profit)
( In case of Profit)
Profit and Loss Appropriation A/c
* Reverse entry in case of losses
By Profit and Loss A/c
( Net Profit)
Journal Entries
For Partners Salary/ Commission Dr. Profit and Loss Appropriation A/c Cr.
To Partners’ Salary
Partners’ Salaries A/c Dr A
B
To Partners’ Capital A/c
C
Dr A’s Capital A/c Cr
Profit and Loss Appropriation A/c Dr By Salary

To Partners’ Salaries A/c
Journal Entries
For Interest on Partners’ Capital Dr. Profit and Loss Appropriation A/c Cr.
To Interest on Capital
Interest on Capital A/c Dr A
To Partners’ Capital A/c B
C
Profit and Loss Appropriation A/c Dr By Interest on Capital

To Interest on Capital A/c
Journal Entries
For Interest on Partners’ Drawings Dr. Profit and Loss Appropriation A/c Cr.
By Interest on Drawings
Partners’ Capital Dr A
To Interest on Drawings A/c B
C
Interest on Drawings A/c Dr To Interest on Drawings
To Profit and Loss Appropriation A/c

Journal Entries
For creation of Reserve Dr. Profit and Loss Appropriation A/c Cr.
To Reserve A/c
Profit and Loss Appropriation A/c Dr

To Reserve A/c
Balance Sheet
Reserves
Journal Entries
For Distribution of profit of Profit and Loss Dr. Profit and Loss Appropriation A/c Cr.
Appropriation A/c
To Profit transferred to
partners capital A/c
A
B
Profit and Loss Appropriation A/c Dr C
To A’s Capital A/c Dr A’s Capital A/c Cr
To B’s Capital A/c By Profit and Loss

To C’s Capital A/c Appropriation Account
( Profit)
Journal Entries
For Distribution of Loss of Profit and Loss Dr. Profit and Loss Appropriation A/c Cr.
Appropriation A/c
By Loss transferred to
partners capital A/c
A
A’s Capital A/c B
B’s Capital A/c C
C’s Capital A/c Dr A’s Capital A/c Cr
To Profit and Loss Appropriation A/c To Profit and Loss

Appropriation A/c (Loss)
Format of Profit and Loss Appropriation A/c
PROFIT AND LOSS APPROPRIATION ACCOUNT
Dr. FOR THE YEAR ENDED ON--------
Cr.
PARTICULARS AMOUNT PARTICULARS AMOUNT
To Profit & Loss A/c (Net Loss) By Profit & Loss A/c (Net Profit)
To Interest On Capital: By Interest on Drawings:
Riya Riya
Reema Reema
To Riya’s Salary By Loss transferred to:
To Reema’s Commission Riya’s Capital/ Current A/c
To Reserve Reema’s Capital/ Current A/c
To Profit transferred to:
Riya’s Capital/ Current A/c
Reema’s Capital/ Current A/c
PRACTICE
QUESTIONS
Q1. A and B are partners in a firm having capitals of Rs.3,00,000 and Rs.2,00,000 respectively as on 1 st April,2019.
B advanced a sum of Rs. 50,000 as loan to the firm on 1st July,2019. The firm earned a profit of Rs.40,000 for the
year ended 31st March, 2020. Both the partners are unable to decide the basis for division of profit. Divide the profits
between the partners giving reasons for your method.

Cr.
Q2. A and B are Partners. The net divisible profit as per Profit and loss Appropriation A/c is Rs.2,50,000. The total
Interest on Partners’ Drawings is Rs.4,000. A’s Salary is Rs. 4,000 per quarter and B’s Salary is Rs. 40,000 p.a.
Calculate the net profit/loss earned during the year.

Cr.
Q3. S and H entered into partnership on 1st April, 2019, Contributing Rs. 3,00,000
and Rs.2,00,000 respectively. They agreed to share profits and losses in the ratio of
3:2. Following information is provided regarding the partnership:
(i) Each partner is allowed a salary of Rs. 10,000 p.a.
(ii) Interest is to be allowed on Capital ; S - Rs. 24,000, H – Rs. 16,000.
(iii) The interest on drawings being Rs. 1,500 and Rs. 2,500 respectively for S and H.
The profit of the firm for the year ended 31st March, 2020 was Rs 1,86,000. Pass
necessary Journal Entries relating to appropriation of profit and prepare Profit and
Loss Appropriation A/c for the year ended 31st March, 2020.
Cr.
Q4. X present the following Profit and loss Appropriation A/c to other partner, Y
PROFIT AND LOSS APPROPRIATION A/c
For the year ended 31-3-2019
Particulars Amount Particulars Amount
To X’s Salary 7,000 By Profit and Loss A/c ( Net Profit) 33,600
To Y’s Commission 4,000 By Interest on Drawings
To Interest on Capital: X - @ 6% 1,000
X - on 40,000 @ 6% 2,400 Y - @ 6% 600
Y - on 30,000 @ 6% 1,800
To Interest on X’s Loan
(@ 6% p.a.) 6,000
To profit transferred to capital A/cs:
X - 4/7 8,000
Y - 3/7 6,000 14,000
35,200 35,200
There is no partnership deed. Y feels that he is not treated properly. Point out the violation of Law if any and redraw
the Profit & Loss Appropriation A/c in case it has not been Drawn Properly.
Difference between charges against Profit
and Appropriation of Profit
Charges Against Profit Appropriation of Profit
It is an expense hence deducted It means distribution of net profit for
from revenue to determine net profit the year among partners under
or loss for the year different heads
It is debited to Profit and Loss It is debited to Profit and Loss
Account Appropriation A/c
It is allowed before Appropriation of It is appropriated after accounting of
Profit all charges
Rent paid to a partner, interest on Salary to partners, interest on
loan by partner capital, transfer of profit to general
reserve
Charges against Profit
( All Items of Trading and Profit and Loss A/c are charges against profit)
These are recorded in Profit and Loss Account and must be paid even in case of low profits/losses
M Managers’ Commission
R Rent to a Partner
I Interest on Partners’ Loan
MANAGER’S COMMISSION
❖ Manager is an employee, so his commission is a

compulsory payment
❖ It is debited to Profit and Loss Account
Dr. Profit & Loss A/c Cr.
To Manager’s Commission
RENT TO A PARTNER
❖ Rent paid or payable is a charge against profit
❖ It is given to partner for using his personal property for
business
❖ It is debited to Profit and Loss Account
To Rent
INTEREST ON PARTNER’S LOAN
❖ Interest on loan given by partner is a charge against profit
❖ It is given at the rate prescribed in Partnership deed
❖ If partnership deed is silent then interest is given @ 6% p.a.
To Interest on Loan
CAPITAL ACCOUNTS
Fixed Capital Method Fluctuating Capital Method
• Under this method two separate accounts are
maintained for each partner Capital A/c and • Each partner has one account i.e. Capital A/c ,
Current A/c. under this method.
• All adjustments for drawings, salary, interest on • All adjustments for drawings, salary, interest on
capital, etc. are made in the Current A/c. capital etc. are made in the Capital account.
• The Capital A/c balance remain unchanged • The balance of the Capital account fluctuates
unless there is addition to or withdrawal of from year to year.
capital.
• The Capital account may sometimes show a
• The Capital account always show a credit debit balance.
balance
CAPITAL ACCOUNTS : Fluctuating Method
Dr. Partners’ Capital A/c Cr.
Particulars A B C Particulars A B C
To Balance b/d By Balance b/d

To Drawings A/c By Bank/Cash
To Interest on Drawings By Interest on capital
To Profit & Loss A/c By Commission
To Balance c/d By Salary
By Profit & Loss App. A/c
(Profit)
CAPITAL ACCOUNTS : Fixed Method
Dr. Partners’ Capital A/c Cr.
To Cash/Bank A/c By Balance b/d
To Balance c/d By Bank/Cash
Dr. Partners’ Current A/c Cr.
To Balance b/d By Balance b/d

To Drawings A/c By Interest on capital
To Interest on Drawings By Commission
To Profit & Loss A/c By Salary
To Balance c/d By Profit & Loss App. A/c
PRACTICE
QUESTIONS
Q1. X and Y are partners with capital of Rs 50,000 and Rs. 30,000 respectively on 1 st April,2016. The trading profit of
the firm for the accounting year before appropriation as per partnership deed was Rs 22,000.
As per partnership deed, interest on capitals is allowed Rs 4,000 and Rs. 2,400 to X and Y respectively. Y is entitled to
a salary of Rs 500 p.m. Drawings of the partners were Rs. 6,000 and Rs. 5,000 and Interest thereon amounts to Rs
300 and Rs 200 for X and Y respectively. Show how the profit will be divided between X and Y and also show partners’
Capital Accounts under:
(i) Fixed Capital and
ii) Fluctuating Capital
CAPITAL ACCOUNT
PARTICULARS X Y PARICULARS X Y
CAPITAL ACCOUNT
CURRENT ACCOUNT
Q2. Prepare the Capital Accounts of partners from the following
particulars, using (i) Fluctuating Capital (ii) Fixed Capital:
Particulars Amit Sumit

Commenced business (1-4-2018) 60,000 40,000
Drawings 9,000 5,000
Interest on Capital 4,800 3,200
Interest on Drawings 900 500
Salary 5,000 --
Commission -- 4,000
Interest on Partners’ Loan -- 3,000
Profit sharing During 2018-19 6,000 6,000
CAPITAL ACCOUNT
PARTICULARS AMIT SUMIT PARICULARS AMIT SUMIT
INTEREST ON CAPITAL Points to remember
❖ Interest on partners’ capital is always calculated on opening balance.
❖ Opening Capital = Closing capital – Profit/ (+ Loss) + Drawings – Additional Capital
❖ It is an Appropriation ( P&L App. A/c ) or Charge ( P&L A/c )
❖ Interest on capital is affected by additional capital and capital withdrawn.
❖ In the absence of partnership deed : No Interest on Capital is provided.
❖ If partnership deed provides for interest on capital as appropriation : Interest on capital will be
given according to the percentage given in deed but subject to the availability /amount of profit.
• Sufficient Profit : Full Interest on Capital
• Insufficient Profit : Up to the amount of Profit
• Losses : No Interest on capital
❖ If partnership deed provides for interest on capital as charge : Full amount of Interest will be
given as per the percentage even if it results into losses
Click Here
INTEREST ON DRAWINGS
DRAWINGS AGAINST PROFIT
❖ It is debited to
DRAWINGS AGAINST CAPITAL Drawings A/c
❖ It is against profit
❖ It is Capital Withdrawn ,so ❖ It does not affect
debited to capital account. capital, so no
❖ It reduces capital. impact on interest
❖ It affects Interest on capital on capital
and not interest on ❖ It is considered for
drawings. calculating interest
on drawings.
INTEREST ON DRAWINGS
Case 1. When Drawings are irregular ( Amount and time of drawings is not Fixed / Uniform)
Ram and Shyam are partners sharing profits and losses in the ratio of 3:2. During the year ended,
31st March, 2018, Ram withdrew as follows:
Date Amount
May 1,2017
August 1, 2017
4,000
10,000 SIMPLE
September 30, 2017 4,000
January 31, 2018 12,000 METHOD
March 31, 2018 4,000
Calculate interest on drawings chargeable from Ram if rate of Interest on drawing is 15% p.a.
Date Amount No of months up to 31-3-18 Interest
May 1,2017 4,000 11 550
August 1, 2017 10,000 8 1000
September 30, 2017 4,000 6 300
January 31, 2018 12,000 2 300
March 31, 2018 4,000 0 0
34,000 2150
4,000 X 11/12 X 15/100
10,000 X 8/12 X 15/100
4,000 X 6/12 X 15/100
12,000 X 2/12 X 15/100
4,000 X 0/12 X 15/100

Case 1. When Drawings are irregular ( Amount and time of drawings is not Fixed / Uniform)
Ram and Shyam are partners sharing profits and losses in the
ratio of 3:2. During the year ended 31st March, 2018, Ram
withdrew as follows:
Date Amount
May 1,2017
August 1, 2017
4,000
10,000 PRODUCT
September 30, 2017 4,000
January 31, 2018 12,000 METHOD
March 31, 2018 4,000
Calculate interest on drawings chargeable from Ram if rate of Interest

on drawing is 15% p.a.
Date Amount No of months up to 31-3-18 Product
May 1,2017 4,000 11 44,000
August 1, 2017 10,000 8 80,000
September 30, 2017 4,000 6 24,000
January 31, 2018 12,000 2 24,000
March 31, 2018 4,000 0 0
34,000 1,72,000
Interest on 1,72,000 @ 15% p.a. for one month is :
INTEREST = Total of Product X RATE X 1

100 12
1,72,000 X 15 X 1 = 2150
100 X 12
Case 2. When Drawings are regular ( Amount and time of drawings is Fixed / Uniform)
Note : This type of questions can be solved using product method also.
Interest on Drawings = Total Drawings X Rate X Average Period

100 12
Average Period = Time left after first drawing + Time left after last Drawing
2
Q1. A withdrew Rs. 2,000 in the beginning of every month. Rate of Interest on Drawings is 10% p.a.
1st 1st 1st 1st 1st 1st 1st 1st 1st 1st 1st 1st
A M J J A S O N D J F M
P A U U U E C O E A E A 31/3
R Y N L G P T V C N B R
FIRST LAST
DRAWING DRAWING
2
Average Period = 12 + 1 = 13 = 6.5 months
2 2
TOTAL DRAWINGS = 2,000 X 12 = 24,000

100 12
Interest on Drawings = 24,000 X 10 X 6.5

100 12
= Rs 1,300
Q2. A withdrew Rs. 2,000 at the end of every month. Rate of Interest on Drawings is 10% p.a.
30th 31st 30th 31st 31st 30th 31st 30th 31st 31st 28th 31st
FIRST LAST
DRAWING DRAWING
2
2 2
TOTAL DRAWINGS = 2,000 X 12 = 24,000

100 12

100 12
= Rs 1,100
Q3. A withdrew Rs. 2,000 in the middle of every month. Rate of Interest on Drawings is 10% p.a.
15th 15th 15th 15th 15th 15th 15th 15th 15th 15th 15th 15th
FIRST LAST
DRAWING DRAWING
2
Average Period = 11.5 + 0.5 = 12 = 6 months
2 2
TOTAL DRAWINGS = 2,000 X 12 = 24,000

100 12
Interest on Drawings = 24,000 X 10 X 6

100 12
= Rs 1,200
Q4. A withdrew Rs. 2,000 in the beginning of every quarter. Rate of Interest on Drawings is 10% p.a.
APR-JUN
1s t 1st 1st 1st JUL-SEP
OCT-DEC
JAN-MAR
FIRST LAST
DRAWING DRAWING
2
2 2
TOTAL DRAWINGS = 2,000 X 4 = 8,000

100 12

100 12
= Rs 500
Q5. A withdrew Rs. 2,000 in the end of every quarter. Rate of Interest on drawings is 10% p.a.
APR-JUN
30th 30th 31st 31st JUL-SEP
OCT-DEC
JAN-MAR
FIRST LAST
DRAWING DRAWING
2
Average Period = 9+0 = 4.5 months
2

100 12

100 12
= Rs 300
Q6. A withdrew Rs. 2,000 in the middle of every quarter. Rate of Interest on Drawings is 10%
p.a.
APR-JUN
15th 15th 15th 15th JUL-SEP
OCT-DEC
JAN-MAR
FIRST LAST
DRAWING DRAWING
2
Average Period = 10.5 + 1.5 = 12 = 6 months
2 2

100 12

100 12
= Rs 400
Q7. A withdrew Rs. 2,000 in the beginning of every month for first six months. Rate
of Interest on drawings is 10% p.a.
1st 1st 1st 1st 1st 1st
P A U U U E O E A A 31/3
C E
FIRST LAST
DRAWING DRAWING
2
2 2

100 12

100 12
= Rs 950
Q8. A withdrew Rs. 2,000 in the beginning of every alternate month starting from
1st April. Rate of Interest on drawings is 10% p.a.
1st 1st 1st 1st 1st 1st
P A U U U E O E A A 31/3
C E
LAST
FIRST
DRAWING
DRAWING
2
Average Period = 12 + 2 = 14 = 7 months
2 2

100 12

100 12
= Rs 700
Q9. A withdrew Rs. 24,000 during the year. Rate of Interest on drawings is 10% p.a.

100 12
Interest on Drawings = 24,000 X 10 X 6 = Rs 1200

100 12
NOTE: When date of drawing is not mentioned the average period is taken.
Average Period = Duration of business in current year/2
*If duration of business is not mentioned then it will be 12 months

Q10. A withdrew Rs. 24,000 during the year. Rate of Interest on drawings is 10%.
Interest on Drawings = Total Drawings X Rate

100
Interest on Drawings = 24,000 X 10 = Rs 2,400

100
NOTE: When p.a. is not mentioned along with rate of interest then flat
rate is applied, i.e. time of drawing is not considered.
PAST ADJUSTMENTS
•A single journal entry is passed

•Adjustment is done through
Capital Account/ Current
Account
JOURNAL
DATE PARTICULARS DEBIT CREDIT
2020 A’s Capital/Current A/c Dr
To B’s Capital/Current A/c ----------
March 31 ( Being………………………….now rectified) ----------
Working Notes : Adjustment Table

PARTICULARS A B FIRM
Dr. Cr. Dr. Cr. Dr. Cr.
*Give what is not given earlier to the

partner by crediting their capital A/c -------- -------- --------
and debited in firm’s A/c
*Take back from the partner which is

given to them by mistake by debiting
to partners’ capital A/c and crediting --------- -------- --------
to firm’s A/c
Balance firm’s A/c( profit / Loss)
QQ. A and B were partners in a firm sharing
Profits and Losses equally. Their fixed
capital were Rs 2,00,000 and Rs. 3,00,000
respectively. The Partners Deed provided
for interest on capital @ 12 % p.a. For the
st
year ended 31 March, 2016, profits of the
firm were distributed without providing
interest on capital.
JOURNAL
2020 A’s Current A/c Dr 6,000
March 31 To B’s Current A/c 6,000
( Being interest on capital was omitted, now rectified)
Working Notes : Adjustment Entry
PARTICULARS A B FIRM
Dr. Cr. Dr. Cr. Dr. Cr.
Interest on Capital to be credited 24,000 36,000 60,000
Loss due to above (1:1) 30,000 30,000 60,000
30,000 24,000 30,000 36,000 60,000 60,000
Dr. 6,000 Cr. 6,000

QQ. Ram, Mohan and Sohan sharing profits
and losses equally have capitals of Rs.
1,20,000, Rs. 90,000 and Rs.60,000
st
respectively. For the year ended 31
March, 2020, interest on capital was
credited to them @ 6% p.a. instead of 5%
p.a. Give adjustment Journal entry.
JOURNAL
2020 Ram’s Capital A/c Dr 300
March 31 To Sohan’s Capital A/c 300
( Being Interest on capital was credited with 6% p.a. instead
of 5% p.a. , now rectified)
PARTICULARS Ram Mohan Sohan Firm

Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Interest wrongly credited (6%) 7,200 5,400 3,600 16,200
Interest to be credited ( 5%) 6,000 4,500 3,000 13,500
Adjustments due to above (1:1:1) 900 900 900 2,700
7,200 6,900 5,400 5,400 3,600 3,900 16,200 16,200
Dr. 300 Cr. 300

GUARANTEE OF PROFIT
•Guarantee by firm to a
partner
•Guarantee by a partner
to another partner
•Guarantee by a partner
to the firm
Q1. A and B are partners sharing profits in the ratio of 3:2. C was
admitted for 1/6th share of profit with a minimum guaranteed amount
of Rs 10,000. At the close of the first financial year the firm earned a
profit of Rs 54,000. Find out the share of profit which C will get.
Ans 1. C’s Share = 1/6th of 54,000 = 9,000

Minimum guaranteed amount = 10,000
Deficiency = 10,000 – 9,000 = 1,000
Deficiency borne by A and B in their profit sharing ratio i.e. 3:2
A will bear 3/5th of 1,000 = 600
B will bear 2/5th of 1,000 = 400
Remaining profit after C’s Share = 54,000 - 9,000 = 45,000
A’s Share of profit = 3/5th of 45,000 = 27,000
B’s Share of profit = 2/5th of 45,000 = 18,000
Dr For the year ended on……………. Cr
To profit transferred to partners capital A/c: By Profit and Loss A/c 54,000
A 27,000
(-) Deficiency borne (600) 26,400
B 18,000
(-) Deficiency borne (400) 17,600
C 9,000
+ Contributed by A 600
+ Contributed by B 400 10,000
54,000 54,000
Q 2. K, L and M were partners in a firm sharing profits in 2:1:1 ratio.
M was guaranteed a profit of Rs. 25,000. K agreed to meet the
liability arising out of guaranteed amount of M. The firm earned a
profit of Rs. 80,000 for the year ended 31-03-2016. Prepare Profit &
Loss Appropriation A/c.
Ans. Profit of K, L and M in ratio of 2:1:1 comes to Rs.

40,000, Rs. 20,000 and Rs. 20,000
Since K guaranteed the profit of Rs. 25,000 to M, so K will

give Rs. 5,000 from his share of profit and M will get Rs.
5,000 from K
Dr For the year ended on 31st March, 2016 Cr
To profit transferred to partners capital A/c: By Profit and Loss A/c 80,000
K 40,000
(-) Deficiency borne (5,000) 35,000
L 20,000
M 20,000
+ Contributed by K 5,000 25,000
80,000 80,000
Q 3. Anil, Sunil and Ravinder entered into
partnership on 1st January, 2011 to share profits in
the ratio of 2:1:1. It was provided in the deed that
Ravinder’s share of profit will not be less than Rs
70,000 p.a. The losses for the year ended 31st
December, 2011 were Rs 2,00,000 before allowing
interest Rs. 9,000 on Anil’s Loan which is due for the
current year. Prepare Profit and Loss A/c for the
year ended 31st December, 2011.
Profit and Loss A/c
Dr For the year ended on 31st December, 2011 Cr
To Loss before Interest on Anil’s Loan 2,00,000 By Net Loss transferred to partners’
Capital A/c:
To Interest on Anil’s Loan 9,000 Anil 1,86,000
To Ravinder’s Capital A/c 70,000 Sunil 93,000 2,79,000
2,79,000 2,79,000
2011 Anil’s Capital A/c Dr 1,04,500
Dec 31 Sunil’s Capital A/c Dr 52,250
Ravinder’s Capital A/c Dr 52,250
To Profit and Loss A/c 2,09,000
( Being Loss distributed in profit sharing ratio of 2:1:1)
Anil’s Capital A/c Dr 81,500

Sunil’s Capital A/c Dr 40,750
To Ravinder’s Capital A/c (52,250+70,000) 1,22,250
( Being deficiency borne in the ratio 2:1)
Q 4.Ali, Bimal and Deepak are partners in a firm. On 1st April, 2011, their
capital accounts stood at Rs.4,00,000, Rs 3,00,000 and Rs. 2,00,000
respectively. They shared profit and losses in the proportion of 5:3:2.
Partners are entitled to interest on capital @ 10% p.a. and salary to Bimal
and Deepak @ Rs 2,000 p.m. and Rs 3,000 per quarter respectively as per
provisions of the partnership deed.
Bimal’s Share of profit (excluding interest on capital but including salary)
is guaranteed at a minimum of Rs. 50,000 p.a. Any deficiency arising on that
account shall be met by Deepak. The profit of the firm for the year ended 31st
March,2012 amounted to Rs. 2,00,000. Prepare Profit & Loss Appropriation
A/c for the year ended 31st March , 2012.
Ans. Interest on capital =Rs 90,000 ( 40,000 + 30,000 + 20,000)

Salary = Rs 36,000 ( 24,000 + 12,000)
Profit of the firm is Rs.74,000 to be shared in the ratio of 5:3:2 (2,00,000-90,000-36,000)
Bimal Share of profit = 74,000 X 3/10 = 22,200
Bimal’s salary = 24,000
Total of profit and salary Rs. 46,200 ( 22,200 + 24,000)
Deficiency of Bimal’s share of profit = 50,000 – 46,200 = 3,800
To Interest on capital : By Profit and Loss A/c 2,00,000
Ali 40,000
Bimal 30,000
Deepak 20,000 90,000
To Salary:
Bimal 24,000
Deepak 12,000 36,000
To profit transferred to Capital A/cs:

Ali (74,000 X 5/10) 37,000
Bimal (74,000 X 3/10) 22,200
Add deficiency from Deepak 3,800 26,000
Deepak (74,000 X 2/10) 14,800

Less deficiency of Bimal (3,800) 11,000
2,00,000 2,00,000
Q5. Jay, Vijay and Karan were partners of an architect firm sharing
profits in the ratio of 2:2:1. Their Partnership Deed provided the
following:
I. A monthly salary of Rs. 15,000 each to Jay and Vijay.
II. Karan was guaranteed a profit of Rs. 5,00,000 and Jay
guaranteed that he will earn an annual fee of Rs. 2,00,000. Any
deficiency arising because of guarantee to Karan will be borne by
Jay and Vijay in the ratio of 3:2.
During the year ended 31st March, 2018 Jay earned fee of Rs.
1,75,000 and the profits of the firm amounted to Rs. 15,00,000.
Showing your workings clearly prepare Profit and Loss Appropriation
A/c for the year ended 31st March, 2018.
To Salary: By Profit and Loss A/c 15,00,000
Jay’s Capital A/c 1,80,000 By Jay’s Capital A/c 25,000
Vijay’s Capital A/c 1,80,000 3,60,000 ( 2,00,000 – 1,75,000)
To profit transferred to Capital A/cs:

Jay’s Capital A/c 4,66,000
Less : Guarantee to Karan (1,60,200) 3,05,800
Vijay’s Capital A/c 4,66,000

Less : Guarantee to Karan (1,06,800) 3,59,200
Karan’s Capital A/c 2,33,000

Add Deficiency met by Jay and Vijay 2,67,000 5,00,000
15,25,000 15,25,000
Q 6. Ajay, Binay and Chetan were partners sharing profits in
the ratio of 3:3:2. The partnership deed provided for the
following:
a) Salary of Rs. 2,000 per quarter to Ajay and Binay.
b) Chetan was entitled to a commission of Rs. 8,000.
c) Binay was guaranteed a profit of Rs. 50,000 p.a.
The profit of the firm for the year ended 31st March,
2015 was Rs 1,50,000 which was distributed among Ajay,
Binay and Chetan in the Ratio of 2:2:1, without taking into
consideration the provisions of partnership deed. Pass
necessary rectifying entry for the above adjustments in the
books of the firm. Show your working clearly.
JOURNAL
2015 Ajay’s Capital A/c Dr 6,400
March 31 Binay ’s Capital A/c Dr 2,000
To Chetan’s Capital A/c 8,400
( Being salary, Commission and Guarantee omitted ,now rectified)

PARTICULARS Ajay Binay Chetan Firm
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Salary 8,000 8,000 ---- 16,000
Commission -- -- 8,000 8,000
Profit already distributed (2:2:1) 60,000 60,000 30,000 1,50,000
Profit to be distributed 50,000 50,000
Profit to be distributed (3:2) 45,600 30,400 76,000
60,000 53,600 60,000 58,000 30,000 38,400 1,50,000 1,50,000
Dr. 6,400 Dr. 2,000 Cr. 8,400

Thank You
Prepared By :
Deepali Gupta

Partnership Fundamentals

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Accounting for Partnership Firm

Partnership is the relation

• Two or more Persons:

Profit and Loss A/c

Dr A’s Capital A/c Cr

Profit and Loss Appropriation A/c Dr By Salary

Dr A’s Capital A/c Cr

Profit and Loss Appropriation A/c Dr By Interest on Capital

Dr A’s Capital A/c Cr

Interest on Drawings A/c Dr To Interest on Drawings

To Profit and Loss Appropriation A/c

Profit and Loss Appropriation A/c Dr

To B’s Capital A/c By Profit and Loss

C’s Capital A/c Dr A’s Capital A/c Cr

To Profit and Loss Appropriation A/c To Profit and Loss

PROFIT AND LOSS APPROPRIATION ACCOUNT

PROFIT AND LOSS APPROPRIATION ACCOUNT

❖ Manager is an employee, so his commission is a

Dr. Profit & Loss A/c Cr.

Dr. Partners’ Capital A/c Cr.

To Balance b/d By Balance b/d

Dr. Partners’ Current A/c Cr.

To Balance b/d By Balance b/d

Particulars Amit Sumit

4,000 X 11/12 X 15/100

10,000 X 8/12 X 15/100

4,000 X 6/12 X 15/100

12,000 X 2/12 X 15/100

4,000 X 0/12 X 15/100

Calculate interest on drawings chargeable from Ram if rate of Interest

Interest on 1,72,000 @ 15% p.a. for one month is :

INTEREST = Total of Product X RATE X 1

Interest on Drawings = Total Drawings X Rate X Average Period

TOTAL DRAWINGS = 2,000 X 12 = 24,000

Interest on Drawings = 24,000 X 10 X 6.5

TOTAL DRAWINGS = 2,000 X 12 = 24,000

Interest on Drawings = 24,000 X 10 X 5.5

TOTAL DRAWINGS = 2,000 X 12 = 24,000

Interest on Drawings = 24,000 X 10 X 6

TOTAL DRAWINGS = 2,000 X 4 = 8,000

Interest on Drawings = 8,000 X 10 X 7.5

TOTAL DRAWINGS = 2,000 X 4 = 8,000

Interest on Drawings = 8,000 X 10 X 4.5

TOTAL DRAWINGS = 2,000 X 4 = 8,000

Interest on Drawings = 8,000 X 10 X 6

1st 1st 1st 1st 1st 1st

TOTAL DRAWINGS = 2,000 X 6 = 12,000

Interest on Drawings = 12,000 X 10 X 9.5

1st 1st 1st 1st 1st 1st

TOTAL DRAWINGS = 2,000 X 6 = 12,000

Interest on Drawings = 12,000 X 10 X 7

Interest on Drawings = Total Drawings X Rate X Average Period

Interest on Drawings = 24,000 X 10 X 6 = Rs 1200

*If duration of business is not mentioned then it will be 12 months

Interest on Drawings = Total Drawings X Rate

Interest on Drawings = 24,000 X 10 = Rs 2,400

•A single journal entry is passed

Working Notes : Adjustment Table

Dr. Cr. Dr. Cr. Dr. Cr.