# SOLUTION OF T.S GREWAL’S CLASS 12TH ACCOUNTANCY QUESTIONS

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Solutions of T.S Grewal’s Class 12th Accountancy Questions of Academic Session 2025-26


Please Refer the partnership deed:

Items If Partnership Deed (YES) If Partnership Deed (NO)
Interest on Partners Loan (Loan given by Partner to Firm) As per Partnership deed 6% p.a.
Profit Sharing Ratio As per Partnership deed Equally among all partners
Interest on Capital As per Partnership deed Nil
Interest on Drawing As per Partnership deed Nil
Salary to partner As per Partnership deed Nil
Commission to Partner As per Partnership deed Nil
Any other payment to partner As per Partnership deed Nil

 

Question 1: In the absence of Partnership Deed, state the provisions of the Partnership Act, 1932 for:

(a) Salaries of partners,

(b) Interest on partners’ capitals,

(c) Interest on loan by partner,

(d) Division of profit,

(e) Interest on partners’ drawings,

(f) Interest on Loan given to partners?

Answer 1:

(a) Salaries of partners: Not allowed

(b) Interest on partners’ capitals: Not allowed

(c) Interest on loan by partner: @6% p.a

(d) Division of profit: Equal

(e) Interest on partners’ drawings: Not charged

(f) Interest on Loan given to partners: Not charged

Question 2: Mahesh, Ramesh and Suresh are partners in a firm. They do not have a Partnership Deed. At the end of the first year of the business, they faced the following issues:

(a) Mahesh wants that interest on capital should be allowed to the partners but Ramesh and Suresh do not agree.

(b) Ramesh wants that the partners should be allowed to draw salary but Mahesh and Suresh do not agree.

(c) Mahesh and Ramesh want that Suresh should pay interest on loan given to him by the firm but Suresh does not agree.

(d) Mahesh and Ramesh having contributed more capital, desire that the profits should be distributed in the ratio of their capital contribution but Suresh does not agree.

State how will these disputes be settled.

Answer 2: 

a) When there is no partnership deed, in such case interest on capital is not allowed to any partners. So in the given case Mahesh will not be allowed interest on capital.

b) When there is no partnership deed, in such case salary is not allowed to any partners. So in the given case Ramesh will not be allowed Salary.

c) When there is no partnership deed, in such case interest on loan given to partner by partnership firm is not charged by firm. So in the given case Suresh will not be charged interest on loan given to him by firm.

d) When there is no partnership deed, in such case profits of the firm is shared among all partners Equally. So in the given case Suresh is correct and profit won’t be shared in the ratio of capital.

 

KEY MATTERS/POINTS TO BE REMEMBERED

Please Refer the partnership deed:

Items If Partnership Deed (YES) If Partnership Deed (NO)
Interest on Partners Loan (Loan given by Partner to Firm) As per Partnership deed 6% p.a.
Profit Sharing Ratio As per Partnership deed Equally among all partners
Interest on Capital As per Partnership deed Nil
Interest on Drawing As per Partnership deed Nil
Salary to partner As per Partnership deed Nil
Commission to Partner As per Partnership deed Nil
Any other payment to partner As per Partnership deed Nil

 

Please Refer the rights and duties of partners:

# Rights of a partner

    1. Right to participate in the business
    2. Right to Access Books of Accounts
    3. Right to express opinion
    4. Right to share profits
    5. Right to Inspect/examine Records and Books of accounts
    6. Right to Retain Firm Property after dissolution of firm
    7. A partner has the right to retire from the firm after serving a notice of retirement.
    8. Right to Interest on Advances/loans given by partner to firm as per deed, otherwise @6% p.a.
    9. Partners has the right to not allow any new partner admission.
    10. Right to be Indemnified against any losses or liabilities incurred in the ordinary course of business

# Duties of a partner?

    1. Duties to share profits in agreed ratio
    2. If a partner carries on a business in competition with the firm without the consent of other partners and earns profit from it, then the profit earned from such business shall be paid to the firm. However, in case of losses incurred shall be borne by him alone.
    3. If a partner earns profit for himself from any transaction of the firm or from the use of firm’s property or business connection, the profit so earned shall be paid to the firm. However, in case of losses incurred shall be borne by him alone.
    4. Duty to Disclose vested interest (conflict of interest
    5. Partners are liable to compensate the firm for any losses caused by their fraudulent actions.

Question 3: Following differences have arisen among P, Q and R. State who is correct in each case:

(a) P used ₹50,000 belonging to the firm and earned a profit of ₹ 5,000. Q and R want the amount to be given to the firm.

(b) Q used ₹10,000 belonging to the firm and incurred a loss of ₹ 1,000. He wants the firm to bear the loss.

(c) P and Q want to purchase goods from Star Ltd., R does not agree.

(d) Q and R want to admit W as partner, P does not agree.

(e) R had given loan of ₹ 2,00,000 to the firm and demands interest @ 10% p.a. P and Q do not want to pay the interest

Answer 3:

(a) In reference to  partners duties,  If a partner earns profit for himself from any transaction of the firm or from the use of firm’s property or business connection, the profit so earned shall be paid to the firm. However, in case of losses incurred shall be borne by him alone.

In this case Q and R both are right and the total profit including firms money of ₹ 55,000 must be given to the firm.

(b) In reference to partners duties,  If a partner earns profit for himself from any transaction of the firm or from the use of firm’s property or business connection, the profit so earned shall be paid to the firm. However, in case of losses incurred shall be borne by him alone.

In this Q is wrong and the total loss of ₹ 1,000 shall be borne by him alone and total amount belonging to firm ₹ 10,000 shall be return to the firm.

(c) P and Q may purchase goods from Star Ltd.

(d) In reference to partners right, Partners has the right to not allow any new partner admission unless the consent of all partners. So in this case Q and R can’t admit W as a new partner.

(e) In reference to partnership deed, if deed is silent then maximum rate of interest on partners loan is 6% p.a. So in this case R will get the interest @6% p.a but not @10% p.a.

Question 4: Barun, Tarun and Shivam are partners in a firm and do not have a Partnership Deed. Barun introduced further capital of ₹ 5,00,000 on 1st October, 2024. Whereas Shivam took loan of ₹ 50,000 from the firm on 1st October, 2024. Disputes have arisen among them on the following:

(a) Barun demands interest @ 10% p.a. on ₹ 5,00,000 being his extra capital:

(b) Tarun desires that his son Deep should be admitted as partner and he will give him half of his share. Barun and Shivam do not agree.

(c) Barun and Tarun are of the view that Shivam should be charged interest on loan from the firm at the lending rate of the banks, which is 12% p.a. to which Shivam objects.

(d) Tarun has withdrawn ₹ 50,000 from the firm for his personal use. Barun and Shivam are of the view that Tarun should be charged interest @ 10% p.a. to which Tarun objects.

Give solution to each issue of dispute.

Answer 4:

(a) Interest on capital will not be allowed.

(b) Deep can’t be admitted as a new partner till then all partners are not agree. In this case both Barun and Shivam do not agree.

(c) When partnership deed is not there in such case interest on loan will not be charged on loan given by firm to partner. In this case no interest will be charged from Shivam.

(d) When partnership deed is not there in such case interest on drawing will not be charged on loan given by firm to partner. In this case no interest will be charged from Tarun.

Question 5: Harshad and Dhiman are in partnership since 1st April, 2024. No partnership agreement was made. They contributed ₹ 4,00,000 and ₹ 1,00,000 respectively as capitals. In addition, Harshad had given loan of ₹ 1,00,000 to the firm on 1st October, 2024. Due to long illness, Harshad could not participate in business activities from 1st August, 2024 to 30th September, 2024. Profit for the year ended 31st March, 2025 was ₹ 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 the ratio 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 & Loss Appropriation Account.

Answer 5:  Harshad’s Claim:

(a) Harshad is not entitled to any interest on capital, but he is entitled to interest on his loan @ 6% p.a. and not 10% p.a.

(b) Profits will be distributed equally.

Dhiman’s Claim:

a) His claim is right that profits should be shared equally:

b) No remuneration will be allowed to Dhiman.

c) Interest on capital will not be allowed and interest on loan will be allowed @6% p.a.

                                 Profit & Loss Appropriation A/c 

Particulars  Amount (₹) Particulars  Amount (₹)
Profit tfr to
Harshad: 88,500
Dhiman: 88,500		  

1,77,000.00

 By Net Profit
(180,000-3,000)		  

1,77,000.00
Total   1,77,000.00 Total   1,77,000.00

 

Note: Computation of Interst on Loan = 1,00,000 x 6% x 6/12 = ₹ 3,000 (Period from 1st Oct to 31st March i.e 6 Months)

 

Question 6: Sita and Geeta are partners in a firm sharing profits in the ratio of 3:2. They had given loan to the firm of ₹30,000 in their profit-sharing ratio on 1st October, 2024. The Partnership Deed does not prescribe for interest on loans from partners. Compute interest payable by the firm to the partners, assuming the firm closes its books every year on 31st March.

Answer 6:

Interest payable to Sita = (30,000 x 3/5) x 6/100 x 6/12 = ₹540;

Interest payable to Geeta = (30,000 x 2/5 x 6/100 x 6/12 = ₹360.

Note: The period of interest will be considered for 6 months from 1st Oct, 2024 to 31st March, 2025.

Also, if there is no partnership deed, in such case interest on partners loan will be given @6% p.a.

 

Question 7: 

Bat and Ball are partners sharing the profits in the ratio of 2:3 with capitals of ₹1,20,000 and ₹60,000 respectively. On 1st October, 2024, Bat and Ball gave loans of ₹2,40,000 and ₹1,20,000 respectively to the firm. Bat had allowed the firm to use his property for business for a monthly rent of ₹5,000. The loss for the year ended 31st March, 2023 before rent and interest amounted to ₹9,000. Show distribution of profit/loss.

Answer 7:

Profit and Loss Account
for the year ended March 31, 2025
Particulars  Amount (₹) Particulars Amount (₹)
To Loss (before interest)     9,000.00
To Rent (5,000×12)   60,000.00
To Interest on Bat’s loan     7,200.00 By Loss transferred to P&L Appropriation Account   79,800.00
To Interest on Ball’s loan     3,600.00
Total   79,800.00 Total   79,800.00

 

Note: Interest on Partners Loan and Rent of partners property both are Charge Against Profit (CAP), so will be shown in P&L A/c.

Profit and Loss Appropriation Account
for the year ended March 31, 2025
Particulars  Amount (₹) Particulars Amount (₹)
To Net loss from P&L A/c   79,800.00 By Partner’s Capital A/c   79,800.00
Bat’s Capital A/c ₹ 31,920
Ball’s Capital A/c ₹ 47,880
Total   79,800.00 Total   79,800.00

 

Working Notes:

WN 1 Interest on Partner’s Loan

Interest on Bat’s loan = 2,40,000 x 6/100 x 6/12 = 7,200

Interest on Ball’s loan = 1,20,000 x 6/100 x 6/12 = 3,600

 

WN 2 Distribution of Loss to the Partners

Total Loss after Interest on Partners’ Loan = ₹79,800 transferred to partner’s capital account

Bat’s Share of Loss = 79,800×2/5 = ₹31,920

Ball’s Share of Loss = 79,800 × 3/5 = ₹47,880

 

Question 8: 

Akhil, Sunil and Parvesh are partners sharing profits in the ratio of 3:2:1. Opening balance of Loan by Sunil Account was ₹3,00,000. Interest payable was agreed @ 10% p.a. Interest was paid by cheque up to February, 2025 on 1st March, 2025 and balance was yet to be paid.

Pass the journal entries for interest on loan by partner.

Answer 8: 

Jounal Entries
Date Particular L.f. Dr (₹) Cr (₹)
1st March, 2025 Interest on Loan by Partner A/c………………..Dr    27,500.00
   To Bank A/c    27,500.00
(Being interest for 11 months upto Feb’25)
31st March, 2025 Interest on Loan by Partner A/c………………..Dr      2,500.00
   To Interest Outstanding A/c      2,500.00
(Being interest for March, 2025 is due)
31st March, 2025 Profit & Loss A/c………………..Dr 30,000
   To Interest on Loan by Partner A/c 30,000
(Being interest on loan by partner tfr to Dr of P&L A/c)

 

Working Note: Computation of Interest on Loan

Interest on Loan for the period Apr’24 to Feb’25 (11 Months) = 3,00,000 x 10% x 11/12 = Rs 27,500

Interest on Loan for the Mar’25 (1 Months) = 3,00,000 x 10% x 1/12 = Rs 2,500

 

Question 9:

Akhil and Bimal are partners sharing profits in the ratio of 3 :2. Akhil gave loan to the firm of ₹1,00,000 on 1st January, 2025. On the same date, the firm gave loan to Bimal of ₹1,00 000. They do not have an agreement as to interest. Akhil had also given his personal property for firm’s godown at a monthly rent of ₹5,000. Firm earns profit of ₹1,03,000 (before above adjustments) for the year ended 31st March, 2025. Show the distribution of profit for the year.

Answer 9:

 Profit and Loss A/c for the year ended 31 March, 2025
Dr. Cr.
Particulars (₹) Particulars (₹)
To interest on loan (Akhil) 1,500
1,00,000×6/100×3/12
To Rent (Akhil)
(5,000×12) 60,000
To Balance C/d 41,500 By net profit b/d 1,03,000
1,03,000 1,03,000

 

Note: Interest on Loan and Rent of the partners property is charge against property (CAP), so will be debited in P& L A/c.

Profit and Loss Appropriation A/c for the year ended 31 March, 2025
Dr. Cr.
Particulars  ₹ Particulars  ₹
To Profit transferred  By Net Profit from P&L A/c  41,500
Akhil – 41,500 × 3/5 24,900
Bimal – 41,500 × 2/5 16,600
41,500 41,500

 

Question 10:

Nirmal and Pawan are partners sharing profits in the ratio of 3 :2. The firm had given loan to Pawan of ₹5,00,000 on 1st April, 2024. Interest was to be charged @ 10% p.a. The firm took loan of ₹2,00,000 from Nirmal on 1st December, 2024. Before giving effect to the above, the firm incurred a loss of ₹10,000 for the year ended 31st March, 2025.

Determine the amount to be transferred to Profit and Loss Appropriation Account.

Answer 10:

Profit and Loss A/c for the year ended 31 March
Dr. Cr.
Particulars  ₹ Particulars  ₹
To Net Loss (Opening Balance) 10,000 By interest on loan (Pawan) 50,000
To interest on loan (Nirmal) (5,00,000×10/100)
2,00,000×6/100×4/12 4,000
To Net profit transferred to P&L Appropriation A/c 36,000
Total 50,000 Total 50,000

 

Question 11:

Ankit, Bhanu and Charu are partners in a firm sharing profits and losses equally with capital of ₹2,50,000 each. On 1st October, 2024, Ankit and Bhanu gave loans of ₹2,50,000 each to the firm whereas Charu took a loan of ₹1,00,000 from the firm on 1st November, 2024. It was agreed among the partners that Charu will be charged Interest @6% pa. Interest on loan from partners was paid on 10th April, 2025.The firm closes its books on 31st March each year.

Pass the Journal entries in the books of the firm for the year ended 31st March, 2025.

Answer 11:

JOURNAL ENTRIES
Date Particulars L.F. Dr. (₹) Cr. (₹)
31-Mar Interest on loan     A/c Dr. 15,000
     To Akhil’s loan A/c 7,500
     To Bhanu’s loan A/c 7,500
(Being interest on loan provided @ 6% p.a. on 2,50,000 for six month)
 

Charu’s capital      A/c

 Dr. 2,500
    To Interest on loan A/c 2,500
(Being interest on loan allowed to Charu@ 6% p.a. on 1,00,000 for five month)
17,500 17,500

 

Question 12:

Atul, Jetha and Tarak are partners sharing profits equally. Jetha was given loan by the firm on 1st July, 2024 of ₹6,000,000. Books are closed on 31st March. Pass the journal entries if

a) Rate of interest is not agreed; and

b) Rate of interest to be charged is agreed @ 10% p.a.?

Answer 12: 

Case – A

As interest on loan to Jetha is not agreed. No interest on loan to partner s charged. Hence, no journal entry will be passed.

 

Case B

JOURNAL
Date Particulars   L.F. Dr. (₹) Cr. (₹)
01-Jul Loan to Jetha A/c Dr. 6,00,000
  To Bank A/c 6,00,000
(Being loan given to Jetha)
 

31-Mar

 Jetha’s Capital A/c Dr. 45,000
  To Interest on loan to Jetha A/c 45,000
(Being interest on loan to Jetha due 6,00,000 x 10% x 9/12)
31-Mar Interest on loan to Jetha A/c Dr. 45,000
  To Profit & Loss A/c 45,000
(Being Interest on loan to Jetha credited to P & L A/c)

 

Question 13:

Parul, Paresh and Rahul are partners in a firm. Firm gave loan to Rahul on 1st February, 2025 of ₹6,00,000. Interest was agreed to be charged @ 6% p.a. Rahul paid interest by cheque up to February, 2025 on 5th March, 2025 and balance was yet to be paid by him on 5th April, 2025.

Pass the journal entries for interest on loan to partner.

Answer 13:

JOURNAL ENTRIES
Date Particulars L.F. Dr. (₹) Cr. (₹)
01-Feb Loan to Rahul A/c Dr. 6,00,000
  To Bank A/c 6,00,000
(Being Loan to Rahul given)
28-Feb Rahul’s Capital A/c Dr. 3,000
  To Interest on loan to Rahul A/c 3,000
(Being interest on loan to Rahul due 6,00,000 x 6% x 1/12)
05-Mar Bank A/c Dr. 3,000
  To Rahul’s Capital A/c 3,000
(Being Rahul paid interest on loan)
31-Mar Rahul’s Capital A/c Dr. 3,000
  To Interest on loan to Rahul A/c 3,000
(Being interest on loan to Rahul due 6,00,000 x 6% x 1/12)
31-Mar Interest on loan to Rahul A/c Dr. 6,000
  To Profit & Loss A/c 6,000
(Being Interest on loan to Rahul credited to P & L A/c)

 

Question 14:  

Vinod and Mohan are partners. Vinod’s Capital is ₹1,00,000 and Mohan ‘s Capital is ₹60,000. Interest on capital is payable @ 6% p.a. Vinod is to get salary of ₹3,000 per month. Net profit for the year is ₹80,000. Prepare Profit and Loss Appropriation Account.

Answer 14:

 

Profit and Loss Appropriation Account
Dr. Cr.
Particulars Amount(₹) Particulars

Amount(₹)
Interest on Capital: Profit and Loss A/c (Net Profit) 80,000
Vinod’s Capital A/c 6,000
Mohan’s Capital A/c 3,600 9,600
Salary to B (₹3,000 × 12) 36,000
Profit transferred to:
Vinod’s Capital A/c 17,200
Mohan’s Capital A/c 17,200 34,400
80,000 80,000

 

Working Notes:
WN1 Calculation of Interest on Capital

Interest on Vinod’s loan = 1,00,000 × 6/100 = ₹ 6,000

Interest on Mohan’s loan = 60,000 × 6/100 = ₹ 3,600

 

WN 2 Calculation of Profit Share of each Partner

Divisible Profit = 80,000 – 9,600 – 36,000 = ₹ 34,400

Profit share of Vinod and Mohan = 34,400 × 1/2 = ₹ 17,200 Each Partner share

 

Question 15:

X, Y and Z are partners in a firm sharing profits in 2:2:1 ratio. The fixed capitals of the partners were: X ₹5,00,000; Y ₹5,00,000 and Z ₹2,50,000 respectively. The Partnership Deed provides that interest on capital is to be allowed @ 10% p.a. Z is to be allowed a salary of ₹20,000 per month. The profit of the firm for the year ended 31st March, 2023 after debiting Z’s salary was ₹4,00,000. Prepare Profit and Loss Appropriation Account.

Answer 15:

Profit and Loss Appropriation Account
for the year ended 31st March 2025
Dr Cr
Particulars Amount(₹) Particulars Amount(₹)
To Z’s Salary 240000 Profit and Loss A/c  (Net Profit after Z’s salary) ₹ 4,00,000
To Interest on Capital: Add: Z’s Salary   ₹ 240,000 640000
X’s Current A/c 50000
Y’s Current A/c 50000
Z’s Current A/c 25000
To Profit transferred to:
X’s Current A/c 110000
Y’s Current A/c 110000
Z’s Current A/c 55000
TOTAL 640000 TOTAL 640000

 

Working Notes:

WN 1 Calculation of Interest on Capital

Interest on X’ s Capital = 5,00,000 × 10/100 = 50,000

Interest on Y’s Capital = 5,00,000 × 10/100 = 50,000

Interest on Z’ s Capital = 2,50,000 × 10/100 = 25,000

WN 2 Calculation of Profit Share of each Partner

Divisible of Profit after Interest on Capital = ₹6,40,000 – ₹ 2,40,000 – ₹1,25,000 = ₹2,75,000

Profit sharing ratio = 2:2:1

Profit share of X’ s = 2,75,000 × 2/5 = 1,10,000

Profit share of Y’ s = 2,75,000 × 2/5 = 1,10,000

Profit share of Z’ s = 2,75,000 × 1/5 = 55,000

 

Question 16:

X and Y are partners sharing profits in the ratio of 3:2 with capitals of  ₹8,00,000 and  ₹6,00,000 respectively. Interest on capital is agreed @ 5% p.a. Y is to be allowed an annual salary of ₹60,000 which has not been withdrawn. Profit for the year ended 31st March, 2025 before interest on capital but after charging Y’s salary was to ₹2,40,000. A provision of 5% of the profit is to be made in respect of commission to the manager.

Prepare Profit & Loss Appropriation Account showing the allocation of profits.

 

Answer 16:

Profit and Loss Account
for the year ended 31st March 2025
Dr. Cr.
Particulars Amount (₹) Particulars Amount (₹)
To Manager’s Commission 15,000 By Profit and Loss A/c 3,00,000
(3,00,000 × 5%) (Net Profit Before Y’s salary 2,40,000 + 60,000)
To Profit transferred to Profit and Loss Appropriation A/c 2,85,000
Total 3,00,000 Total 3,00,000

 

Profit and Loss Appropriation Account
for the year ended 31st March 2025
Dr. Cr.
Particulars Amt. (₹) Particulars Amt. (₹)
To Y’s Salary (Y’s Current A/c) 60,000 By Profit and Loss A/c 2,85,000
To Interest on Capital: (Profit transferred from P&L A/c)
X’s Current A/c.      40,000
Y’s Current A/c.      30,000 70,000
To Profit transferred to:
X’s Current A/c.      93,000
Y’s Current A/c       62,000 1,55,000
Total 2,85,000 Total 2,85,000

 

Working Notes:

WN 1 Calculation of Manager’s Commission

Profit for making Managers’ Commission = 2,40,000 + 60,000 (Y’s Salary) = ₹3,00,000

Manager’s Commission = ₹3,00,000 × 5/100 = ₹15,000

WN 2 Calculation of Interest on Capital

Interest on X’s Capital A/c=₹8,00,000×5/100= ₹40,000

Interest on Y’s Capital A/c=₹6,00,000×5/100=₹30,000

 

WN 3 Calculation of Profit Share of each Partner

Profit available for distribution = 2,85,000 – ₹60,000 – ₹70,000 = ₹1,55,000

X’s Share of Profit=₹1,55,000×3/5=₹93,000

Y’s Share of Profit=₹1,55,000×2/5=₹62,000

 

Question 17:

Atul and Mithun are partners sharing profits in the ratio of 3: 2

Balances as on 1st April 2024 were as follows:

Loan Accounts: Atul – ₹3,00,000 (Cr.) and Mithun – ₹2,00,000 (Dr.)

Capital Accounts (fixed): Atul – ₹5,00,000 and Mithun –  ₹6,00,000

It was agreed to allow and charge interest @ 8% p.a. on loan taken and given. Partnership Deed provided to allow interest on capital @ 10% p.a. Interest on Drawings was charged ₹5,000 each.

Profit before giving effect to above was ₹2,28,000 for the year ended 31st March, 2025.

Prepare Profit and Loss Appropriation Account.

 Answer 17:

Profit and Loss Account
for the year ended 31st March 2025
Dr. Cr.
Particulars Amount (₹) Particulars Amount (₹)
To Interest on Atul Loan 24,000 By Profit and Loss A/c 2,28,000
(3,00,000 X 8%) By Interest on Mithun Loan 16,000
To Profit transferred to Profit and Loss Appropriation A/c 2,20,000 (2,00,000 X 8%)
Total 2,44,000 Total 2,44,000

 

Profit and Loss Appropriation Account
for the year ended 31st March 2025
Dr. Cr.
Particulars Amt. (₹) Particulars Amt. (₹)
To Interest on Capital: By Profit and Loss A/c (Net Profit) 2,20,000
Atul’s Current A/c.            50,000 By Interest on Drawing:
Mithun’s Current A/c.       60,000 1,10,000 Atul’s Current A/c             5,000
Mithun’s Current A/c.       5,000 10,000
To Profit transferred to:
Atul’s Current A/c.            72,000
Mithun’s Current A/c.       48,000 1,20,000
Total 2,30,000 Total 2,30,000

 

Working Notes:

 

WN-1 interest allowed on loan given by Atul

Interest on loan = 3,00,000 × 8/100 = 24,000

 

WN-2 interest Charged on loan given to Mithun

Interest on loan = 2,00,000 × 8/100 = 16,000

 

WN-3 Calculation of Interest on Capital

Interest on Atul’s loan = 5,00,000 × 10/100 = 50,000

Interest on Mithun’s loan = 6,00,000 × 10/100 = 60,000

 

WN-4 Calculation of Profit Share of each Partner

Profit Share of Atul =1,20,000 × 3/5 = 72,000

Profit Share of Mithun =1,20,000×2/5 = 48,000

 

Question 18: 

Reema and Seema are partners sharing profits equally. The Partnership Deed provides that both Reema and Seema will get monthly salary of ₹15,000 each, Interest on Capital will be allowed @ 5% p.a. and Interest on Drawings will be charged @ 10% p.a. Their capitals were ₹5,00,000 each and drawings during the year were  ₹60,000 each. The firm incurred a loss of  ₹1,00,000 during the year ended 31st March, 2025. Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2025.

Answer 18:

Profit and Loss Appropriation Account
for the year ended March 31, 2025
Dr. Cr.
Particulars Amt. (₹) Particulars Amt. (₹)
To Profit and Loss A/c 1,00,000 By Interest on Drawings A/c:
   Reema                            3,000
   Seema                            3,000 6,000
By Loss transferred to
   Reema                         47,000
   Seema                         47,000 94,000
Total 1,00,000 Total 1,00,000

 

Note: In this case partnership firm has incurred a loss of Rs 1,00,000. Since the firm has incurred loss, no interest on capital and salary will be allowed to the partners because due to appropriation no loss should be incurred under partnership firm. However, interest on drawings will be charged from each of them @ 10% p.a. on the amounts withdrawn by them for an average period of six months.

 

Question 19:

Bhanu and Partab are partners sharing profits equally. Their fixed capitals as on 1st April, 2024 were ₹8,00,000 and  ₹10,00,000 respectively. Their drawings during the year were ₹50,000 and  ₹1,00,000 respectively. Interest on Capital is to be allowed @ 10% p.a. whether the firm earned profit or incurs loss. Interest on drawings is to be charged @ 15% p.a. Net Profit for the year ended 31st March, 2025 before giving effect to the above was ₹1,20,000. Prepare Profit and Loss Appropriation Account.

Answer 19: 

Profit and Loss Appropriation Account
for the year ended March 31, 2025
Dr. Cr.
Particulars Amt. (₹) Particulars Amt. (₹)
To Interest on Capital A/c: By Profit and Loss A/c 1,20,000
  Bhanu’s Current A/c            80,000 By Interest on Drawings A/c:
  Partap’s Current A/c.        1,00,000 1,80,000   Bhanu’s Current A/c                3,750
  Partap’s Current A/c                7,500 11,250
By Loss transferred to:
   Bhanu’s Current A/c             24,375
   Partap’s Current A/c             24,375 48,750
Total 1,80,000 Total 1,80,000

 

#IMP# In this case interest on capital is charge against profit that means a compulsory expense which must be paid whether firm is having profit or incurs loss.

#IMP# Other way of presentation:

In this question profit & loss can be prepared and the interest on capital amount of Rs 1,80,000 will be charges in P&L A/c by showing it into Dr side of P7L A/c which results into net loss of Rs 60,000 which will be transferred to P&L Appropriation A/c Dr side. Then the interest on drawing amount of Rs 11,250 will be recovered which results into net loss of Rs 48,750 will be distributed between Bhanu and Pratap Rs 24,375 each.

Working Notes:

WN-1 Calculation of Interest on Capital

Bhanu’s Current A/c   = 8,00,000 X 10/100 = 80,000

Partap’s Current A/c = 10,00,000 X 10/100 = 1,00,000

 

WN-2 Calculation of Interest on Drawing

Bhanu’s Current A/c   = 50,000 X 15/100 X 6/12 = 3,750

Partap’s Current A/c = 1,00,000 X 15/100 X 6/12 = 7,500

 

WN-3 Calculation of profit sharing 

Bhanu’s Current A/c   = 48,750 X 1/2 = 24,375

Partap’s Current A/c = 48,750 X 1/2 = 24,375

 

 

Question 20:

Amit and Sumit entered into partnership on 1st April, 2024 and invested ₹1,50,000 and ₹2,50,000 respectively as capital. The Partnership Deed provided for interest on capital @ 10% p.a. It also provided that Capital Accounts shall be maintained following Fixed Capital Accounts method. The firm earned net profit of ₹1,00,000 for the year ended 31st March 2025. Pass the Journal Entries for allowing interest on capital.

Answer 20:

Journal Entries
Date Particulars L.F. Dr. Cr.
Amt. (₹) Amt. (₹)
Mar-31 Profit & Loss Appropriation A/c…………….Dr 40,000
2025     To Amit’s Current A/c 15,000
    To Sumit’s Current A/c 25,000
(Interest on capital transferred to Profit & Loss Appropriation A/c)

 

# Working Note: Calculation of Interest on Capital:
Amit’s Interest on Capital=1,50,000×10/100=  ₹15,000

Sumit’s Interest on Capital=2,50,000×10/100= ₹25,000

 

Question 21:

Kamal and Kapil are partners having fixed capitals of ₹5,00,000 each as on 1st April, 2024. Kamal introduced further capital of ₹1,00,000 on 1st January, 2025 whereas Kapil withdrew  ₹1,00,000 on 1st January, 2025 out of capital. Interest on capital is to be allowed @ 10% p.a. The firm earned net profit of ₹6,00,000 for the year ended 31st March 2025. Pass the Journal entry for interest on capital and prepare Profit and Loss Appropriation Account.

Answer 21:

Journal
Date Particulars L.F. Dr. Cr.
Amt. (₹) Amt. (₹)
31 March 2025 Interest on Capital A/c……DR 1,00,000
    To Kamal’s Current A/c 52,500
    To Kapil’s Current A/c 47,500
(Being interest on capital amount is due)
31 March 2025 Profit & Loss Appropriation A/c……DR 1,00,000
   To Interest on Capital A/c 1,00,000
(Being interest amount is transferred to P&L Appropriation A/c)
31 March 2025 Profit & Loss Appropriation A/c……DR 5,00,000
    To Kamal’s Current A/c 2,50,000
    To Kapil’s Current A/c 2,50,000
(Being profit transferred to Partners Current A/c)

 

Profit and Loss Appropriation Account
for the year ended 31 March 2025
Dr. Cr.
Particulars Amt. (₹) Particulars Amt. (₹)
To Interest on Capital A/c: Profit and Loss A/c 6,00,000
  Kamal’s Current A/c              52,500
  Kapill’s Current A/c              47,500 1,00,000
To Profit transferred to:
  Kamal’s Current A/c          2,50,000
  Kapil’s Current A/c            2,50,000 5,00,000
Total 6,00,000 Total 6,00,000

 

Working Notes:

WN1: Calculation of Interest on Capital:
Kamal = (5,00,000 × 10% × 9/12) + (6,00,000 × 10% × 3/12) =  ₹ 52,500

Kapil = (5,00,000 × 10% × 9/12) + (4,00,000 × 10% × 3/12) = ₹47,500

Question 22:

Simran and Reema are partners sharing profits in the ratio of 3:2. Their capitals as on 1st April, 2024  were  ₹2,00,000 each whereas Current Accounts had balances of  ₹50,000 and  ₹25,000 respectively. Interest on capital is to be allowed @ 5% p.a. The net profit of the firm for the year ended 31st March, 2025 was ₹3,00,000. Pass the Journal entries for interest on capital and distribution of profit. Also prepare Profit and Loss Appropriation Account for the year.

Answer 22:

Journal
Date Particulars L.F. Dr. Cr.
Amt. (₹) Amt. (₹)
31 March 2025 Interest on Capital A/c…………DR 20,000
    To Simran’s Current A/c 10,000
    To Reema’s Current A/c 10,000
(Being Interest on capital transferred to partners current A/c)
31 March 2025 Profit & Loss Appropriation A/c 2,80,000
    To Simran’s Current A/c 1,68,000
    To Reema’s Current A/c 1,12,000
(Being Profit transferred to Partners’ Current A/c)

 

Profit and Loss Appropriation Account
for the year ended 31 March 2025
Dr. Cr.
Particulars Amt. (₹) Particulars Amt. (₹)
To Interest on Capital A/c: Profit and Loss A/c 3,00,000
  Simran’s Current A/c     10,000
  Reema’s Current A/c.     10,000 20,000
Profit transferred to:
  Simran’s Current A/c     1,68,000
  Reema’s Current A/c.     1,12,000 2,80,000
Total 3,00,000 Total 3,00,000

 

Working Notes:

WN1: Calculation of Interest on Capital
Simran’s Interest on Capital = 2,00,000 × 5 /100 = ₹10,000

Reema’s Interest on Capital = 2,00,000 × 5 /100 = ₹10,000

 

Question 23:

Anita and Ankita are partners sharing profits equally. Their capitals, maintained following Fluctuating Capital Accounts Method, as on 1st April, 2024 were ₹5,00,000 and ₹4,00,000 respectively. Partnership Deed provided to allow interest on capital @ 10% p.a. The firm earned net profit of ₹2,00,000 for the year ended 31st March, 2025. Pass the Journal entry for interest on capital.

Answer 23:

Journal
Dr. Cr.
Date Particulars L.F. Amt. (₹) Amt. (₹)
31 March 2025 Profit & Loss Appropriation A/c 90,000
    To Anita’s Capital A/c 50,000
    To Ankita’s Capital A/c 40,000
(Interest on capital transferred to Profit & Loss Appropriation A/c)

 

Working Notes:

WN1: Calculation of Interest on Capital
Anita’s Interest on Capital = 5,00,000 × 10/100 = ₹50,000

Ankita’s Interest on Capital = 4,00,000 × 10/100 = ₹40,000

 

Question 24:

Ashish and Aakash are partners sharing profit in the ratio of 3:2. Their Capital Accounts showed a credit balance of ₹5,00,000 and ₹6,00,000 respectively as on 31st March, 2025 after debit of drawings during the year of ₹1,50,000 and ₹1,00,000 respectively. Net profit for the year ended 31st March, 2025 was ₹5,00,000. Interest on capital is to be allowed @ 10% p.a.

Pass the Journal entry for interest on capital and prepare Profit and Loss Appropriation Account.

 

Answer 24:

Journal
Particulars L.F. Dr. Cr.
Amt. (₹) Amt. (₹)
Profit & Loss Appropriation A/c…………………Dr 1,35,000
    To Ashish’s Capital A/c 65,000
    To Aakash’s Capital A/c 70,000
(Interest on capital transferred to Profit & Loss Appropriation A/c)
Profit & Loss Appropriation A/c…………………Dr 3,65,000
    To Ashish’s Capital A/c 2,19,000
    To Akash’s Capital A/c 1,46,000
(Profit transferred to Partners’ Capital A/c)

 

Profit and Loss Appropriation Account
for the year ended 31 March 2025
Dr. Cr.
Particulars Amt. (₹) Particulars Amt. (₹)
Interest on Capital A/c: Profit and Loss A/c 5,00,000
  Ashish’s Capital A/c 65,000
  Aakash’s Capital A/c 70,000 1,35,000
Profit transferred to:
  Ashish’s Capital A/c 2,19,000
  Aakash’s Capital A/c 1,46,000 3,65,000
Total 5,00,000 Total 5,00,000

 

Working Notes:

WN1: Calculation of Opening Capital:

Particulars Ashish Aakash
Capital at the end 5,00,000 6,00,000
Add: Drawings made 1,50,000 1,00,000
Capital at the beginning 6,50,000 7,00,000

 

WN2: Calculation of Interest on Capital
Ashish’s Interest on Capital = 6,50,000 × 10/100 =  ₹65,000

Aakash’s Interest on Capital = 7,00,000 × 10/100 = ₹70,000

 

Question 25:

Naresh and Sukesh are partners with capitals of ₹3,00,000 each as on 31st March, 2025. Naresh had withdrawn ₹50,000 against capital on 1st October, 2024 and also ₹1,00,000 besides the drawings against profit. Sukesh also had drawings of ₹1,00,000. Interest on capital is to be allowed @ 10% p.a. Net profit for the year was ₹2,00,000, which is yet to be distributed. Pass the Journal entries for interest on capital and distribution of profit.

Answer 25:

Journal
Particulars L.F. Dr. Cr.
Amt. (₹) Amt. (₹)
Profit & Loss Appropriation A/c…………………Dr 82,500
    To Naresh’s Capital A/c 42,500
    To Sukesh’s Capital A/c 40,000
(Interest on capital transferred to Profit & Loss Appropriation A/c)
Profit & Loss Appropriation A/c…………………Dr 1,17,500
    To Naresh’s Capital A/c 58,750
    To Sukesh’s Capital A/c 58,750
(Profit transferred to Partners’ Capital A/c)

 

Working Notes:

WN1: Calculation of Opening Capital:

Particulars Naresh Sukesh
Capital at the end 3,00,000 3,00,000
Add: Withdrawal of capital 50,000 –
Add: Drawings against profit 1,00,000 1,00,000
Capital at the beginning 4,50,000 4,00,000

 

WN2: Calculation of Interest on Capital
Naresh = (4,50,000 × 10/100 × 6/12) + (4,00,000 × 10/100 × 6/12) =  ₹42,500

Sukesh = 4,00,000 × 10/100 = ₹40,000

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