Accountancy

How will a firm deal with a situation when its partnership deed provides for interest on capital, but the profit earned by it is not enough to do so, at the rate mentioned in the deed?

SOLUTION The available profit will be distributed among the partners in the ratio of interest on capital.

Continue ReadingHow will a firm deal with a situation when its partnership deed provides for interest on capital, but the profit earned by it is not enough to do so, at the rate mentioned in the deed?

Abha and Bharat were partners. They shared profits and losses equally. On 1st April, 2014 their Capital Accounts showed balances of Rs. 3,00,000 and Rs. 2,00,000 respectively. Calculate the amount of Profit to be distributed Between the partners in the partnership deed provide for Interest on Capital @10% p.a. and the firm earned a profit of Rs. 50,000 for the year ended 31st March, 2015. (C.B.S.E. 2016, Comptt.)

SOLUTION No amount of profit is left for distribution because profit earned during the Year Rs. 50,000 is equal to Interest on Capital.

Continue ReadingAbha and Bharat were partners. They shared profits and losses equally. On 1st April, 2014 their Capital Accounts showed balances of Rs. 3,00,000 and Rs. 2,00,000 respectively. Calculate the amount of Profit to be distributed Between the partners in the partnership deed provide for Interest on Capital @10% p.a. and the firm earned a profit of Rs. 50,000 for the year ended 31st March, 2015. (C.B.S.E. 2016, Comptt.)

Kanha, Neeraj and Asha were partners in a firm. They admitted Raghav their landlord as a partner in the firm. Raghav brings sufficient amount of capital and goodwill premium for his share in the profits. Raghav had given a loan of Rs. 1,00.000 @ 10% p.a. interest in the partnership firm before he came the partner. Now the accountant of the firm is emphasising that the interest on loan should he paid @6% p.n. Is he right in doing so? Give reason in support of your answer. (C.B.S.E. 2015 Comptt.)

SOLUTION No, accountant is not right in doing so. Reason: Raghav had given a loan of Rs. 1.00.000 @10% p.a. interest to the partnership Firm before he became the partner.

Continue ReadingKanha, Neeraj and Asha were partners in a firm. They admitted Raghav their landlord as a partner in the firm. Raghav brings sufficient amount of capital and goodwill premium for his share in the profits. Raghav had given a loan of Rs. 1,00.000 @ 10% p.a. interest in the partnership firm before he came the partner. Now the accountant of the firm is emphasising that the interest on loan should he paid @6% p.n. Is he right in doing so? Give reason in support of your answer. (C.B.S.E. 2015 Comptt.)

State the closing entries for: (a) rent paid to a partner; (b) interest on loan allowed to partners.

SOLUTION (a) Profit & Loss A/c                                           Dr. To Rent A/c               (Closing of rent paid to the partner) (b) Profit & Loss A/c                                           Dr.To Interest on Partner’s Loan A/c  (Closing of interest on…

Continue ReadingState the closing entries for: (a) rent paid to a partner; (b) interest on loan allowed to partners.

A, B and C are partners decided that no interest on drawings is to be charged to any partner. But after one year ‘C’ wants that interest on drawings should be charged to every partner. State how ‘C’ can do this.

SOLUTION He can only do this if it is consented by all partners (i.e., by altering partnership deed).

Continue ReadingA, B and C are partners decided that no interest on drawings is to be charged to any partner. But after one year ‘C’ wants that interest on drawings should be charged to every partner. State how ‘C’ can do this.

Padam and Virender were partners in a firm with no partnership deed. Their drawings during the year ended 31st March, 2015 amounted to Rs. 5,00,000 and Rs.  2,00,000 respectively. Virender was of the opinion that the firm should drawings @ 6% p.a. However, Padam disagreed to it. Padam convinced Virender that interest cannot be charged on drawings. What argument must have been put forward by Padam that convinced Virender?

SOLUTION Padam would have given the argument that if Partnership Deed does not exist, Partnership Act, 1932 prevails, as per which no interest is charged on drawings.

Continue ReadingPadam and Virender were partners in a firm with no partnership deed. Their drawings during the year ended 31st March, 2015 amounted to Rs. 5,00,000 and Rs.  2,00,000 respectively. Virender was of the opinion that the firm should drawings @ 6% p.a. However, Padam disagreed to it. Padam convinced Virender that interest cannot be charged on drawings. What argument must have been put forward by Padam that convinced Virender?

Ruchika and Surekha entered into partnership with capitals of Rs. 30,00.000 and Rs. 15,00,000 respectively. They did not enter into partnership deed. At the end of accounting year, Ruchika claimed interest on capital @6% p.a. but Surekha convinced Ruchika that interest cannot be allowed on capital. Explain how Surekha would have convinced Ruchika?

SOLUTION Surekha would have given the argument that in case Partnership Deed does not exist, Partnership Act, 1932 prevails, as per which interest is not allowed on capitals.

Continue ReadingRuchika and Surekha entered into partnership with capitals of Rs. 30,00.000 and Rs. 15,00,000 respectively. They did not enter into partnership deed. At the end of accounting year, Ruchika claimed interest on capital @6% p.a. but Surekha convinced Ruchika that interest cannot be allowed on capital. Explain how Surekha would have convinced Ruchika?