2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation

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Karnataka 2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation

2nd PUC Accountancy Accounting for Not for Profit Organisation NCERT Textbook Questions and Answers

2nd PUC Accountancy Accounting for Not for Profit Organisation Short Answer Type Questions and Answers

Question 1.
Define Partnership Deed.
Answer:
When the partnership agreement is written and signed By all the partners and is duly stamped according to the Stamp Act, it is called “Partnership Deed”.

Question 2.
Explain in 50 words as to why it is considered desirable to make the partnership
agreement in writing.
Answer:
Partnership comes into existence as a result of agreement among the partners. The agreement can be either oral or written. The Partnership Act does not require that the agreement must be in writing. But wherever it is in writing, the document,’ which contains terms of the agreement is called ‘Partnership Deed’. It generally contains the details about all the aspects affecting the relationship between the partners including the objective of business, contribution of capital by each partner, ratio in which the profits and the losses will be shared by the partners and entitlement of partners to interest on capital, interest on loan, etc.

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Question 3.
List the items which may be debited or credited in capital accounts of the partners when:
(i) Capitals are fixed.
(ii) Capital are fluctuating.
Answer:
(i) Capitals are fixed.
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(ii) Capital are fluctuating.
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Question 4.
Why is Profit and Loss Adjustment Account prepared? Explain.
Answer:
Profit and Loss Appropriation Account is merely an extension of the Profit and Loss Account of the firm. It shows how the profits are appropriated or distributed among the partners. All adjustments in respect of partner’s salary, partner’s commission, interest on capital, interest on drawings, etc. are made through this account. It starts with the net profit/net loss as per Profit and Loss Account is transfered to this account. The journal entries for preparation of Profit and Loss Appropriation Account and making various adjustments through it are given as follows:

Question 5.
Give two circumstances under which the fixed capitals of partners may change.
Answer:
Two circumstances under which the fixed capitals of partners change

  1. When partner withdraw money from the business for personal use.
  2. When partner when introduce additional capital to the business, interest credited, interest charged.

Question 6.
If a fixed amount is withdrawn on the first day of every quarter, for what period the interest on total amount withdrawn will be calculated?
Answer:
If the amount is withdrawn at the beginning of each quarter, the interest is calculated on the total money withdrawn during the year, for a period of seven and half months and if withdrawn at the and of each quarter it will be calculated for a period of 4’A months.

Question 7.
In the absence of Partnership deed, specify the rules relating to the following :
(i) Sharing of profits and losses.
(ii) Interest on partner’s capital,
(iii) Interest on Partner’s drawings.
(iv) Interest on Partner’s loan
(v) Salary to a partner.
Answer:
(i) Sharing of profits and losses – Equally
(ii) Interest on partner’s capital – interest not charged.
(iii) Interest on Partner’s drawings – interest not charged
(iv) Interest on Partner’s loan – 6% p.a
(v) Salary to a partner – not provided

2nd PUC Accountancy Accounting for Not for Profit Organisation Long Questions and Answers

Question 1.
What is partnership? What are its chief characteristics? Explain.
Answer:
Any association of two or more persons who carry on a business jointly with the intention of sharing Profit / Loss is called “Partnership”.

  • Two or More Persons: In order to form partnership, there should be at least two persons coming together for a common goal.
  • Agreement: Partnership is the result of an agreement between two or more persons to do business and share its profits and losses.
  • Business: The agreement should be to carry on some business. Mere co-ownership of a property does not amount to partnership.
  • Mutual Agency: The business of a partnership concern may be carried on by all the partners or any of them acting for all.
  • Sharing of Profit: Another important element of partnership is that, the agreement between partners must be to share profits and losses of a business.
  • Liability of Partnership: Each partner is liable jointly with all the other partners and also severally to the third party for all the acts of the firm done while he is a partner.

Question 2.
Discuss the main provisions of the Indian Partnership Act 1932 that are relevant to partnership accounts if there is no partnership deed.
Answer:
The important provisions affecting partnership accounts are as follows:
(a) Profit Sharing Ratio: If the partnership deed is silent about the profit sharing ratio, the profits and losses of the firm are to be shared equally by partners, irrespective of their capital contribution in the firm.

(b) Interest on Capital: No partner is entitled to claim any interest on the amount of capital contributed by him in the firm as a matter of right. However, interest can be allowed when it is expressly agreed to by the partners. Thus, no interest on capital is payable if the partnership deed is silent on the issue. In case the deed provides for payment of interest on capital but does not specify the rate, the interest will be paid at the rate of 6 per cent per annum. Further the interest is payable only out of the profits of the business and not if the firm incurs losses during the period.

(c) Interest on Drawings: No interes. is to be charged on the drawings made by the partners, if there is no mention in the Deed.

(d) Interest on Advances: If any partner has advanced some money to the firm beyond the amount of his capital for the purpose of business, he shall be entitled to get an interest on the amount at the rate of 6 per cent per annum.

(e) Remuneration for Firm’s Work: No partner is entitled to get salary or other remuneration for taking’-part in the conduct of the business of the. firm unless there is a provision for the same in the Partnership.Deed.

Question 3.
Explain why it is considered better to make a partnership agreement in writing.
Answer:
Normally the partner is admitted for the needs of additional capital and managerial help. When a partner is admitted the financial structure also changes. Some times all old partners may decided to have their capital in proportion of new profit sharing ratio. If they decided as per new ratio, then capital should be adjusted. The partner may bring the cash or excess capital may be withdrawn. But this changes not effected to new partner based on new partner share the old partners capital adjusted.

Example : A and B are partners sharing equally their capital before admitting a new partner, stood at and 30,000 and 20,000.

They agreed to admit Mv-C for 1 /3 share of future profit and has to bring ₹ 25,000 as capital. The new profit sharing ratio is 1 : 1 : 1. The old partner decided to adjust the capital as per new profit sharing ratio.

In this case – the new partner brings capital of ₹ 25,000 where as MvA’s capital is 30,000 and Mv. B’s capital is 20,000. Hence Mv. A has to withdraw ₹ 5,000 from the business and Mr. B has to bring ₹ 5000 to the business.

Question 4.
Illustrate how interest on drawings will be calculated under various situations.
Answer:
The partnership agreement may also provide for charging of interest on money withdrawn out of the firm by the partners for their personal use. As stated earlier, no interest is charged on the drawings if there is no express agreement among the partners about it. However if the partnership deed so provides for it, the interest is charged at an agreed rate, for the period money remained outstanding from the partners during an accounting year. Charging interest on drawings discourages excessive amounts of drawings by the partners.
The calculation of interest on drawings under different situations are.

When Fixed Amounts is Withdrawn Every Month : Many a times a fixed amount of money is withdrawn by the partners, at equal time interval, Aashish withdrew ₹ 10,000 per month from the firm for his personal use during the year ending March 31, 2006. The calculation of average period and the interest on drawings, in different situations would be as follows:

(a) When the amount is withdrawn at beginning end of each month
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(b) When the amount is withdrawn at the end of each month
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(c) When money is withdrawn in the middle of the month
When money is withdrawn in the middle of the month, nothing is added or deduced from the total period.
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When Fixed Amount is withdrawn Quarterly.
If the amount is withdrawn at the beginning of each quarter, the interest is calculated on the total money withdrawn during the year, for a period of seven and half months and if withdrawn at the and of each quarter it will be calculated for a period of 4\(\frac { 1 }{ 2 }\) months.

Alternatively, the interest can be calculated on the total amount withdrawn during the accounting year, for a period of 4 \(\frac { 1 }{ 2 }\) months.

When Varying Amounts are Withdrawn at Different Intervals.
When the partners withdraw different amounts of money at different time intervals, the interest is calculated using the product method.
When Dates of Withdrawal are not specified.
When the total amount withdrawn is given but the dates of withdrawals are not specified, it is assumed that the amount was withdrawn evenly throughout the year.

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Question 5.
How will you deal with a change in profit sharing ratio among existing partners?
Take imaginary figures to illustrate your answer?
Answer:
The profits and losses of the firm are distributed among the partners in an agreed ratio. However, if the partnership deed is silent, the firm’s profits and losses are to be shared equally by all the partners.

You know that in the case of sole partnership the profit or loss, as ascertained by the profit and loss account is transferred to the capital account of the proprietor. In case of partnership, however, certain adjustments such as interest on drawings, interest on capital, salary to partners, and commission to partners are required to be made. For this purpose, it is customary to prepare a Profit and Loss Appropriation Account of the firm and ascertain the final figure of profit and loss to be distributed among the partners, in their profit sharing ratio.

2nd PUC Accountancy Accounting for Not for Profit Organisation Numerical Questions and Answrs

Fixed and Fluctuating Capitals

Question 1.
Triphati and Chauhan are partners in a firm sharing profits and losses in the ratio of 3:2. Their capitals were ₹ 60,000 and ₹ 40,000 as on January 01, 2005. During the year, they earned a profit of ₹ 30,000. According to the partnership deed both the partners are entitled to ₹ 1,000 per month as Salary and 5% interest on their capital. They are also to be charged an interest of 5% on their drawings, irrespective of the period, which is ₹ 12,000 for Tripathi, L 8,000 for Chauhan. Prepare Partner’s Accounts when capitals are fixed.
Solution:
(a) If interest on Capital and Partners’ salaries and interest on drawings is charged against profit, the solution will beas :
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(b) If interest on capital ad partners salaries and interest on drawings is distributed out of profit.

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Question 2.
Anubha and Kajal are partners of a firm sharing profits and losses in the ratio of 2:1. Their capital, were ₹ 90,000 and ₹ 60,000. The profit during the year were ₹ 45,000. According to partnership deed, both partners are allowed salary, ₹ 700 per month to Anubha and ₹ 500 per month to Kajal. Interest allowed on capital @ 5%p.a. The 1 drawings at the end of the period were ₹ 8,500 for Anubha and ₹ 6,500 for Kajal. Interest is to be charged @ 5% p.a. on drawings. Prepare partners capital accounts, assuming that the capital account are fluctuating.
Solution:
(a)
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(b) Alternative
Note : If partners’ salaries, interest on capital and interest on drawing adjusted in Profit and Loss Appropriation Account.
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Question 3.
Marshall and Dhiman are in partnership since April 01, 2014. No Partnership agreement was made. They contributed ₹ 4,00,000 and 1,00,000 respectively as capital. In addition, Harshad advanced an amount of ₹ 1,00,000 to the firm, on October 01, 2014. Due to long illness, Harshad could not participate in business activities from August 1 to September 30, 2014. The profits for the year ended March 31, 2014 amounted to ₹ 1,80,000. Dispute has arisen between Harshad and Dhiman.
Harshad Claims:
(i) he should be given interest @ 10% per annum on capital and loan;
(ii) Profit should be distributed in proportion of capital;
Dhiman Claims:
(i) Profits should be distributed equally;
(ii) He should be allowed ₹ 2,000 p.m. as remuneration for the period he managed the business, in the absence of Harshad;
(iii) Interest on Capital and loan should be allowed @ 6% p.a.
You are required to settle the dispute between Harshad and, Dhiman. Also prepare Profit and Loss Appropriation Account.
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Question 4.
Aakriti and Bindu entered into partnership for making garment on April 01, 2015 without any Partnership agreement. They introduced Capitals of ₹ 5,00,000 and ₹ 3,0, 000 respectively on October 01, 2015. Aakriti Advanced. ₹ 20,000 by way of loan to the firm without any agreement as to interest. Profit and Loss account for the year ended March 2016 showed profit of ₹ 43,000. Partners could not agree upon the question of interest and the basis of division of profit. You are required to divide the profits between them giving reason for your solution.
Solution:
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Reasons:
(a) Interest on partners loan shall be allowed at 6% p.a. because there is no partnership agreement.
(b) Interest on capital shall not be allowed because there is no agreement on interest on capital. Profit shall be distributed equally because profit sharing ratio has not been given.

Question 5.
Rakhi and Shikha are partners in a firm, with capitals of ₹ 2,00,000 and ₹ 3,00,000 respectively. The profit of the firm, for the year ended 2014-15 is ₹ 23,200. As per the Partnership agreement, they share the profit in their capital ratio, after allowing a salary of ₹ 5,000 per month to Shikha and interest on Partner’s capital at the rate of 10% p.a. During the year Rakhi withdrew ₹ 7,000 and Shikha ₹ 10,000 for their personal use. You are required to prepare Profit and Loss Appropriation Account and Partner’s Capital Accounts.
Solution:
If interest on capital and Partner’s salaries will be provided even if firm involves in loss.

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Question 6.
Lokesh and Azad are partners sharing profits in the ratio 3:2, with capitals of ₹ 50,000 and 30,000, respectively. Interest on capital is agreed to be paid (a), 6% p.a. Azad is allowed a salary of ₹ 2,500 p.a. During 2013, the profits prior to the calculation of interest on capital but after charging Azad’s salary amounted to ₹ 12,500. A provision of 5% of profits is to be made in respect of manager’s commission. Prepare accounts showing the allocation of profits and partner’s capital accounts.
Solution:
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Question 7.
The partnership agreement between Maneesh and Girish provides that:
(i) Profits will be shared equally;
(ii) Maneesh will be allowed a salary of ₹ 400 p.m;
(iii) Girish who manages the sales department will be allowed a commission equal to 10% of the net profits, after allowing Maneesh’s salary;
(iv) 7% interest will be allowed on partner’s fixed capital;
(v) 5% interest will be charged on partner’s annual drawings;
(vi) The fixed capitals of Maneesh and Girish are ₹ 1,00,000 and ₹ 80,000, respectively. Their annual drawings were ₹ 16,000 and 14,000, respectively. The net profit for the year ending March 31, 2006 amounted to ₹ 40,000;
Prepare firm’s Profit and Loss Appropriation Account.
Solution:
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Question 8.
Ram, Raj and George are partners sharing profits in the ratio 5:3:2. According to the partnership agreement George is to get a minimum amount of ₹ 10,000 as his share of profits every year. The net profit for the year 2013 amounted to ₹ 40,000. Prepare the Profit and Loss Appropriation Account.
Solution:

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Question 9.
Amann, Babita and Suresh are partners in a firm. Their profit sharing ratio is 2:2:1. Suresh is guaranteed a minimum amount of ₹ 10,000 as share of profit, every year, Any deficiency on that account shall be met by Babita. The profits for two years ending December 31, 2015, and December 31, 2016, were ₹ 40,000 and ₹ 60,000, respectively. Prepare the Profit and Loss Appropriation Account for the two years.
Babita’s Capital ₹ 14,000; Suresh’s capital ₹ 10,000 and for the year 2006, Profit transferred to Amann’s Capital ₹ 24,000, Suresh’s capital, ₹ 12,000)
Solution:
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Question 10.
Simmi and Sonu are partners in a firm, sharing profits and losses in tite ratio of 3:1.
The profit and loss account of tite firm for the year ending March 31, 2015 shows.a net profit of 1,50,000. Prepare the Profit and Loss Appropriation Account by taking into consideration the following information:
(I) Partners capital on April 1, 2014; Sinimi, 30,000; Sonu, 60,000; 104 Accountancy Not-for-Profit Organisation and Partnership Accounts
(ii) Current accounts babnces on April 1, 2014; Simmi, 30,000 (cr.); Sonu, 15,000
(iii) Partners drawings during the year amounted to Simmi, 20,000; Sonu, 15,000;
(iv) Interest on capital was allowed @ 5% p.a.
(y) Interest on drawing was to be charged @ 6% p.a. at an average of six in months;
(vi) Partners’ salaries : Simini 12,000 and Sonu 9,000. Also show the partners’ current accounts.
Solution:
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Question 11.
Ramesh and Suresh were partners in a firm sharing profits in the ratio, of their capitals contributed on commencement of business which were ₹ 80,000 and ₹ 60,000 respectively. The firm started business on April 1, 2013. According to the partnership agreement, interest on capital and drawings are 12% and 10% p.a., respectively. Ramesh and Suresh are to get a monthly salary of ₹ 2,000 and ₹ 3,000, respectively. The profits for year ended March 31, 2015 before making above appropriations was ₹ 1,0, 300. The draw ings of Ramesh and Suresh were ₹ 40,000 and ₹ 50,000, respectively. Interest on drawings amounted to ₹ 2,000 for Ramesh and ₹ 2,500 for Suresh. Prepare Profit and Loss Appropriation Account and* partners’ capital accounts, assuming that their capitals are fluctuating.
Solution:
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Capital Ratio = Ramesh : Suresh
= 80,000 : 60,000
= 4 : 3

Question 12.
Sakesh and Vanita were partners in a firm. Their partnership agreement provides that:
(i) Profits would be shared by Sukesh and Vanita in the ratio of 3:2;
(ii) 5% interest is to be allowed on capital;
(iii) Vanita should be paid a monthly salary of ₹ 600.
The following balances are extracted from the books of the firm, on December 31,2014.
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Net profit for the year, before charging interest on capital and after charging partner’s . salary was ₹ 9,500. Prepare the Profit and Loss Appropriation Account and the Partner’s Current Accounts.
Calculation of Interest on Capital and Interest on Drawings
Solution:
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Question 13.
Rahul, Rohit and Karan started partnership business on April 1, 2014 with capitals of ₹ 20,00,000, ₹ 18,00,000 and ? 16,00,000, respectively.
The profit for the year ended March 2015 amounted to ₹ 1,35,000 and the partner’s drawings had been Rahul ₹ 50,000, Rohit ₹ 50,000 and Karan ₹ 40,000. The profits are distributed among partner’s in the ratio of 3:2:1. Calculate the interest on capital @ 5% p.a.
Solution:
Interest on Capital
Rahul = 20,00,000 × 5% =₹ 1,00,000
Rohit = 18,00,000 × 5% =  ₹ 90,000 .
Karan = 18,00,000 × 5% = ₹ 80,000

Question 14.
Sunflower and Pink Rose started partnership business on April 01, 2014 with capitals of ₹ 2,50,000 and ₹ 1,50,000, respectively. On October 01, 2014, they decided that their capitals should be ₹ 2,00,000 each. The necessary adjustments in the capitals are made by introducing or withdrawing cash. Interest on capital is to be allowed @ 10% p.a. Calculate interest on capital as on March 31, 2015.
Solution:
Product Method
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Interest on Capital = Sum of Product \(\frac { Rate }{ 2 }\) x \(\frac { 1 }{ 12 }\)
Sunflower = 27,00,000 x \(\frac { 10 }{ 100 }\) x \(\frac { 1 }{ 12 }\) = 22,500
PinkRose = 21,00,000 \(\frac { 10 }{ 100 }\) x \(\frac { 1 }{ 12 }\) = 17,500
Alternative Method
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Question 15.
On March 31,2014 after the close of accounts, the capitals of Mountain, Hill and Rock stood in the books of the firm at ₹ 4,00,000, ₹ 3,00,000 and ₹ 2,00,000, respectively. Subsequently, it was discovered that the interest on capital @ 10% p.a. had been omitted. The profit for the year amounted to ₹ 1,50,000 and the partner’s drawings had beenJVIountain: ₹ 20,000, Hill ₹ 15,000 and Rock k 10,000.
Calculate interest on capital.
Solution:
Generally interest on Capital is calculated on opening balance of capital. If additional capital is not given.
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Interest on Capital
Mountain 3,70,000 x 10% = 37,000
Hill 2,65,000 x 10% = 26,500
Rock 1,60,000 x 10%= 16,000

Question 16.
Following is the extract of the Balance Sheet of, Neelkant and Mahdev as on March 31, 2014:
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During the year Mahadev’s drawings were ₹ 30,000. Profits during 2007 is ₹ 10,00,000. Calculate interest on capital @ 5% p.a for the year ending March 31, 2014.
Solution:
Interest on Capital
Neelkant’s 10,00,000 x 5% = 50,000
Mahadev’s 10,00,000 x 5% = 50,000
Note : In this question, as the balance of both Partner’s Capital Account and of Partner’s current account are mentioned, so it has been assumed that the capital of the partners is fixed. As we, know, when the capital of the partners is fixed, drawings and interest on capital does not affect the capital balances of the partners. Rather, it would affect their current accunt balance.

Therefore, in this case, capital at the beginning (i.e. opening capital) and capital at the end (i.e. Closing capital) of the year would remain same. Thus,the interest on capital is calculated on fixed capital balances (given in the balance sheet of the question)

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Question 17.
Rishi is a partner in a firm. He withdrew the following amounts during the year ended March 31, 2014.
May 01,2013 ₹ 12,000
July 31,2013 ₹ 6,000
September 30, 2013 ₹ 9,000
November 30,2013 ₹ 12,000
January 01, 2014 ₹ 8,000
March 31, 2014 ₹ 7,000 Interest on drawings is charged @ 9% p.a.
Calculate interest on drawings
Solution:
Product Method
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Here the formula will be
Interest on Drawings = Product x \(\frac { Rate }{ 100 }\) x \(\frac { 1 }{ 12 }\)
= 3,06,000 x 9% x \(\frac { 1 }{ 12 }\) = 2,295.

Question 18.
The capital accounts of Moli and Golu showed balances of ₹ 40,000 and ₹ 20,000 as on April 01, 2014. They shared profits in the ratio of 3:2. They allowed interest on capital @ 10% p.a. and interest on drawings, @ 12 p.a. Golu advanced a loan of ₹ 10,000 to the firm on August 01, 2014. During the year, Moli withdrew ₹ 1,000 per month at the beginning of every month whereas Golu withdrew ₹ 1,000 per month at the end of every month. Profit for the year, before the above mentioned adjustments was ₹ 20,950. Calculate interest on drawings show distribution of profits and prepare partner’s capital accounts.
Solution:
Interest on Moli’s Drawing = Total Drawings x \(\frac { Rate }{ 100 }\) x \(\frac{13}{2 \times 12}\)
= 12,000 x 12% x \(\frac{13}{2 \times 12}\) = 780.

Interest on Golu’s Drawing = Total Drawings x \(\frac { Rate }{ 100 }\) x \(\frac{11}{2 \times 12}\)
= 12,000 x 12% x \(\frac{11}{2 \times 12}\) = 600.

Question 19.
Rakesh and Roshan are partners, sharing profits in the ratio of 3:2 witn capitals of ₹ 40,000 and ₹ 30,000, respectively. They withdrew from the firm the following amounts, for their personal use:
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Interest is to be charged @ 6% p.a. Calculate interest on drawings, assuming that book of accounts are closed on March 31, 2015, every year.
Solution:
Calculation of Interest on Drawings
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Interest on Capital = Sum of Product \(\frac { Rate }{ 100 }\) x \(\frac { 1 }{ 12 }\)
= 25,300 x \(\frac { 6 }{ 100 }\) x \(\frac { 1 }{ 2 }\) = 126.5
Interest on Rohans Drawings.

Question 20.
Himanshu withdrews ₹ 2,500 at the end Month of each month/ The Partnership deed provides for charging the interest on drawings @ 12% p.a. Calculate interest on Himanshu’s drawings for the year ending 31st December, 2015.
Solution:
Total Drawing of Himanshu = 2,500 x 12 = 30,000
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Question 21.
Bharam is a partner in a firm. He withdraws ₹ 3,000 at the starting of each month for 12 months. The books of the firm closes on March 31 every year. Calculate interest on drawings if the rate of interest is 10% p.a.
Solution:
Total Drawing of Bharam = 3,000 x 12 = 36,000
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Question 22.
Raj and Neeraj are partners in a firm. Their capitals as on April 01, 2015 wereT2,50,000 and ₹ 1,50,000, respectively. They share profits equally. On July 01, 2015, they decided that their capitals should be ₹ 1,00,000 each. The necessary adjustment in the capitals were made by introducing or withdrawing cash by the partners’. Interest on capital is allowed @ 8% p.a. Compute interest on capital for both the partners for the year ending on March 31, 2016.
Solution:
Interest on Capital
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Interest = Sum of Product  x \(\frac { Rate }{ 100 }\) x \(\frac { 1 }{ 12 }\)
= 16,50,000 x \(\frac { 8 }{ 100 }\) x \(\frac { 1 }{ 12 }\) = 11,000
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Question 23.
Amit and Bhola are partners in a firm. They share profits in the ratio of 3:2. As per their partnership agreement, interest on drawings is to be charged @ 10% p.a. Their drawings during 2013 were ₹ 24,000 and ₹ 16,000, respectively. Calculate interest on drawings based on the assumption that the amounts were withdrawn evenly, throughout the year.
Solution:
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Question 24.
Harish is a partner in a firm. He withdrew the following amounts during the year 2015:
February 01 ₹ 4,000
May 01 ₹ 10,000
June 30 ₹ 4,000
October 31 ₹ 12,000
December 31 ₹ 4,000
Interest on drawings is to be charged @ 712 % p.a.
Calculate the amount of interest to be charged on Harish’s drawings for the year ending December 31,2015.
Solution:
Calculation of interest on drawings – Harish
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Interest on Drawing = 1,72,000 x  \(\frac { 75 }{ 100 }\) x \(\frac { 1 }{ 12 }\) = 1,075

Question 25.
Menon and Thomas are partners in a firm. They-share profits equally. Their monthly drawings are ₹ 2,000 each. Interest on drawings is to be charged @ 10% p.a. Calculate interest on Menon’s drawings for the year 2006, assuming that money is withdrawn: (i) in the beginning of every month, (ii) in the middle of every month, and (iii) at the end of every month.
Sol. Case (i)
If they withdraw money in the beginning of each month
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Case (ii)
If they withdraw in the middle of every month
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 41

Case (iii)
If they withdraw at the end of every month
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 42

KSEEB Solutions

Question 26.
On March 31, 2015, after the close of books of accounts, the capital accounts of Ram, Shyam and Mohan showed balance of ₹ 24,000 ₹ 18,000 and ₹ 12,000, respectively. It was later discovered that interest on capital @ 5% had been omitted. The profit for the year ended March 31,2015, amounted to ₹ 36,000 and the partner’s drawings had been Ram, ₹ 3,600; Shyam, ₹ 4,500 and Mohan, ₹ 2,700. The profit sharing ratio of Ram, Shyam and Mohan was 3:2:1. Calculate interest on capital.
Solution:
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 43
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 44

Guarantee of Profit to the Partners
Question 27.
Amit, Sumit and Samiksha are in partnership sharing profits in the ratio of 3:2:1. Samiksha’ share in profit has been guaranteed by Amit and Sumit to be a minimum sum of ₹ 8,000. Profits for the year ended March 31, 2015 was ₹-36,000. Divide profit among the partners.
Solution:
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 45

Question 28.
Pinki, Deepati and Kaku are partner’s sharing profits in the ratio of 5:4:1. Kaku is given a guarantee that his share of profits in any given year would not be less than ₹ 5,0. Deficiency, if any, would be borne by Pinki and Deepti equally. Profits for the year amounted to ₹ 40,000. Record necessary journal entries in the books of the firm showing the distribution of profit.
Solution:
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 46

Question 29.
Abhay, Siddharth and Kusum are partners in a firm, sharing profits in the ratio of 5:3:2. Kusum is guaranteed a minimum amount of ₹ 10,000 as per share in the profits. Any deficiency arising on that account shall be met by Siddharth. Profits for the years ending March 31, 2015 and 2016 are ₹ 40,000 and 60,000 respectively. Prepare Profit and Loss Appropriation Account.
Solution:
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 47

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Question 30.
Radha, Mary and Fatima are partners sharing profits in the ratio of 5:4:1. Fatima is given a guarantee that her share of profit, in any year will not be less than ₹ 5,000. The profits for the year ending March 31,2015 amounts to ₹ 35,000. Shortfall if any, in the profits guaranteed to Fatima is to be borne by Radha and Mary in the ratio of 3:2. Record necessary journal entry to show distribution of profit among partner.
Solution:
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 48

Question 31.
X, Y and Z are in Partnership, sharing profits and losses in the ratio of 3:2:1, respectively. Z’s share in the profit is guaranteed by X and Y to be,a minimum of ₹ 8,000. The net profit for the year ended March 31, 2015 was ₹ 30,000. Prepare Profit and Loss Appropriation Account, indicating the amount finally due to each partner.
Solution:
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 49

Question 32.
Arun, Bobv and Chintu are partners in a firm sharing profit in the ratio or 2:2:1. According to the terms of the partnership agreement, Chintu has to get a minimum of ₹ 60,000, irrespective of the profits of the firm. Any Deficiency to Chintu on Account of such guarantee shall be borne by Arun. Prepare the profit and loss appropriation account showing distribution of profits among partners in case the profits for year 2015 are: (i) ₹ 2,50,000; (ii) ₹ 3,60,000.
Solution:
Case (i)
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 50

Case (ii)
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 51

Question 33.
Ashok, Brijesh and Cheena are partners sharing profits and losses in the ratio of 2 : 2 : 1. Ashok and Brijesh have guaranteed that Cheenashare in any year shall be less than ₹ 20,000. The net profit for the year ended March 31, 2015 amounted to ₹ 70,000. Prepare Profit and Loss Appropriation Account.
Solution:
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 52

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Question 34.
Ram, Mohan and Sohan are partners with capitals of ₹ 5,00,000, ₹ 2,50,000 and 2,00,000 respectively. After providing interest on capital @ 10% p.a. the profits are divisible as follows:
Ram \(\frac { 1 }{ 2 }\), Mohan \(\frac { 1 }{ 3 }\) and Sohan \(\frac { 1 }{ 6 }\). But Ram and Mohan have guaranteed that Sohan’s share in the profit shall not be less than ₹ 25,000, in any year. The net profit for the year ended March 31, 2015 is ₹ 2,00,000, before charging interest on capital.
You are required to show distribution of profit.
Solution:
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 53

Question 35.
Amit, Babita and Sona form a partnership firm, sharing profits in the ratio of 3 : 2 : 1, subject to the following :
(i) Sona’s share in the profits, guaranteed to be not less than ₹ 15,000 in any year.
(ii) Babita gives guarantee to the effect that gross fee earned by her for the firm shall be equal to her average gross fee of the proceeding five years, when she was carrying on profession alone (which is ₹ 25,000). The net profit for the year ended March 31, 2015 is ₹ 75,000. The gross fee earned by Babita for the firm was ₹ 16,000, You are required to show Profit and Loss Appropriation Account (after giving effect to the alone).
Solution:
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 54

Question 36.
The net profit of X, Y and Z for the year ended March 31, 2015 was f 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 ₹ 700, Y ₹ 500 and Z ₹ 300.
(iii) Partner’s Salary : X ₹ 1000, Y ₹ 1500 p.a. .
The capital accounts of partners were fixed as : X ₹ 1,00,000, Y ₹ 80,000 and Z ₹ 60,000. Record the adjustment entry.
Solution:
Past Adjustment
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 55
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 56

Question 37.
The firm of Harry, Porter and Ali, who have been sharing profits in the ratio of 2 : 2 : 1, have existed for same years. Ali wants that he should get equal share in the profits with Harry and Porter and he further wishes that the change in 110 Accountancy – Not-for- Profit Organisation and Partnership Accounts the profit sharing ratio should come into t effect retrospectively were for the last three year. Harry and Porter have agreement on this account.
The profits for the last three years were:
2013- 14 22,000
2014- 15 24,000
2015- 16 29,000
Show adjustment of profits by means of a single adjustment journal entry.
Solution:
Distribution of Profit
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 57
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 58

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Question 38.
Mannu and Shristhi are partners in a firm sharing profit in the ratio of 3 : 2. Following is the balance sheet of the firm as on March 31, 2015.
Balance Sheet as at March 31,2015.
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 59
Profit for the year ended March 31, 2015 was ₹ 5,000 which was divided in the agreed • ratio, but interest @ 5% p.a. on capital and @ 6% p.a. on drawings was inadvertently enquired. Adjust interest on drawings on an average basis for 6 months. Give the adjustment entry.
Solution:
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 60

Question 39.
On March 31, 2015 the balance in the capital accounts of Eluin, .Monu and Ahmed, after making adjustments for profits, drawing, etc; were ₹ 80,000, ₹ 60,000 and ₹ 40,000 respectively. Subsequently, it was discovered that interest on capital and interest on drawings had been omitted.
The partners were entitled to interest on capital @ 5% p.a. The drawings during the year were Eluin ₹ 20,000; Monu, ₹ 15,000 and Ahmed, ₹ 9,000. Interest on drawings chargeable to partners were Eluin ₹ 500, Monu ₹ 360 and Ahmed ₹ 200. The net profit during the year amounted to ₹ 1,20,000.
The profit sharing ratio was 3:2:1. Pass necessary adjustment entries.
Solution:
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 61

Question 40.
Azad and Benny are equal partners. Their capitals are ₹ 40,000 and ₹ 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.
Solution:
Interest on Capital
Azad =40,000 x 5% = 2,000
Benny = 80,000 x 5% = 4,000
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 62

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Question 41.
Kavita and Pradeep are partners, sharing profits in the ratio of 3 : 2. They employed Chandan as their manager, to whom they paid a salary of ₹ 750 p.m. Chandan deposited ₹ 20,000 on which interest is payable @ 9% p.a. At the end of 2001 (after the division of profit), it was decided that Chandan should be treated as partner w.e.f. Jan. 1., 1998 with 1/6 th share in profits. His deposit being considered as capital carrying interest @ 6% p.a. like capital of other partners. Firm’s profits after allowing interest on capital were as follows:
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 63
Record the necessary journal entries to give effect to the above.
Solution:
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 64
Chandan received as Manager = Interest on Loan + Salary = 7,200 T 36,000 = 43,200
Total Profit of 4 years before interest on Chandan’s Loan an d Salary = 2,38,200
Interest on Chandan’s Capital for 4 years = {20,000 x (6/100) = 1,200}
= 1,200 x 4 = 4,800
Profit after interest on all partners Capital
= Total Profit of four years before interest on Chandan’s loan and Salary – Interest on Chandans capital for four years.
= 2,38,200 – 4,800 = 2,33,400
Wrong Distribution – Distribution of 4 years
Profit when Chandan as a Manager
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 65
Right distribution – Division of Profit when Chandan as Partner
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 66
Kavita’s share of profit (2,33,400 – 38,900) x (3/5) = 1,16,700
Pradeep’s share of Profit (2,33,400 – 38,900) x (2/5) = 77,800
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 67

Question 42.
Mohan, Vijay and Anil are partners, the balance on their capital accounts being ₹ 30,000, ? 25,000 and ₹ 20,000 respectively. In arriving at these figures, the profits for the year ended March 31, 2015 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 ₹ 5,000, ₹ 4,000 and ₹ 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 ₹ 250, Vijay ₹ 200, Anil ₹ 150 was not recorded in the books.
Record necessary corrections through journal entries.
Solution:
Interest on Capital Shall be calculated on opening-capital
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 68
interest on capital
Mohan = 27,000 x 10% = 2,700 ,
Vijay = 21,000 x 10% = 2,100
Anil = 15,000 x 10% =1,500
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 69

Question 43.
Anju, Manju and Mamta are partners whose fixed capitals were t 10,000, ₹ 8,000 and ₹ 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:
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 70
Make necessary and adjustment entry at the beginning of the fourth year i.e. Jan. 2015. Sol. Interest on Capital ‘
Anuj = 10,000 x 5% = 500
Manju = 8,000 x 5 = 400
Mamta = 6,000 x 5% = 30
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 71
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 72

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Question 44.
Dinker and Ravinder were partners sharing profits and losses in the ratio of 2:1. The following balances were extracted from the books of account, for the year ended December 31, 2015.
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 73
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 74
Prepare final accounts for the year ended December 31,2005, with following adjustment:
(a) Stock on December 31,2005, was ₹ 42,500.
(b) A Provision is to be made for bad debts at 5% on debtors.
(c) Rent outstanding was ₹ 1,600.
(d) Wages outstanding were ₹ 1,200.
(e) Interest on capital to be allowed on capital @ 4% per annum and interest on drawings to be charged @ 6% per annum.
(f) Dinker and Ravinder are entitled to a Salary of ₹ 2,000 per annum
(g) Ravinder is entitled to a commission₹ 1,500.
(h) Depreciation is to be charged on Building @ 4%, Plant and Machinery, 6%, and furniture and fixture, 5%.
(i) Outstanding interest on loan amounted to ₹ 350.
Solution:
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 75
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 76
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 77
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2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 79

Question 45.
Kajol and Sunny were partners sharing profits and losses in the ratio of 3:2. The following Balances were extracted from the books of account for the year ended March 31, 2015.
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 80
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 81
Prepare final accounts for the year ended March 31,2015, with following adjustments:
(a) Stock on March 31,2006 was ₹ 37,500.
(b) Bad debts ₹ 3,000; Provision for bad debts is to be made at 5% on debtors.
(c) Rent Prepaid were ₹ 1,200.
(d) Wages outstanding were ₹ 2,200.
(e) Interest on capital to be allowed on capital at 6% per annum and interest on drawings to be charged @ 5% per annum.
(f) Kajol is entitled to a Salary of ₹ 1,500 per annum.
(g) Prepaid insurance was ₹ 500.
(h) Depreciation was charged on Building, @ 4%; Plant and Machinery, @ 5%; Motor car, @ 10% and furniture and fixture, @ 5%.
(i) Goods worth ₹ 7,000 were destroyed by fire on January 20,2015.The Insurance company agreed to pay ₹ 5,000 in full settlement of the claim.
Solution:
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 82
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2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 85
2nd PUC Accountancy Question Bank Chapter 2 Accounting for Not for Profit Organisation - 86

Test your Understanding -I

Question 1.
Mohan and Shyam are partners in a firm. State whether the claim is valid if the partnership agreement is silent in the following matters:
(i) Mohan is an active partner. He wants a salary of ₹ 10,000 per year;
(ii) Shyam had advanced a loan to the firm. He claims interest @ 10% per annum;
(iii) Mohan has contributed ₹ 20,000 and Shyam ₹ 50,000 as capital. Mohan wants equal share in profits.
(iv) Shyam wants interest on capital to be credited @ 6% per annum.
Answer:
(i) Not valid
(ii) Not valid
(iii) Not valid
(iv) Not valid

Question 2.
State whether the following statements are true or false:
(i) Valid partnership can be formulated even without a written agreement between the partners.
(ii) Each partner carrying on the business is the principal as well as the agent for all the other partners;
(iii) Maximum number of partners in a banking firm can be 20;
(iv) Methods of settlement of dispute among the partners can’t be part of the partnership deed;
(v) If the deed is silent, interest at the rate of 6% p.a. would be charged on the drawings made by the partner;
(vi) Interest on partner’s loan is .to be given @ 12% p.a. if the deed is silent about the rate. ‘
Answer:
(i) No
(ii) No
(iii) No
(iv) No
(v) No
(vi) No

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