Chapter 1» Accounting for Partnership Firms—Fundamentals 1.5 Liabilities of Partners Subject to agreement among the partners, . Ifa partner carries on a business in competition with the firm without the consent of other partners and earns profit from it, the profit earned from such business shall be paid to the firm. However, losses incurred, if any, are borne by him alone. . 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. For example, a partner gets commission from the seller of goods on goods purchased by the firm, the commission so earned shall be paid to the firm. vy Mlustration 1 (Provisions of the Indian Partnership Act, 1932). ‘Amar, Karan and Charu are partners in a firm and they do not have a Partnership Deed. (i) Amar had invested more capital than other partners and asks for interest on capital at 10% p.a. But Karan and Charu do not agree with him. (ii) Karan devotes more time in handling the business and demands a salary of € 5,000 pm, But Amar and Charu do not agree with him. i) Charu demands interest on the loan of % 50,000 given by her @ 12% p.a. (iv) Amar withdrew % 10,000 from the firm for his personal use. Karan and Charu demand that interest on drawings be charged from him @ 10% p.a. (v) Profit for the year before the above claims was % 50,000. Amar demands profits to be distributed in the capital ratio. (vi) Karan wants to introduce his son Inder as partner. Charu objects to his proposal. How will be the above issues resolved? Soluti The partners do not have a Partnership Deed. Therefore, provisions of the Indian Partnership Act, 1932 will apply to resolve the matters: (i) Interest on capital is not to be allowed to the partners. Therefore, Amar will not be allowed interest on the capital, (ii) Remuneration is not payable to the partners. Therefore, Karan will not get salary. (iii) Interest on Loan by Partner is payable @ 6% p.a. Therefore, Charu will get interest % 3,000 (i.e., 50,000 x 6/100) and not @ 12% p.a. {iv) Interest on drawings by Amar will not be charged. (v) Profit after Interest on Loan by Charu, i.e., € 47,000 (¥ 50,000 —% 3,000) will be distributed equally. (vi) A partner cannot be admitted without the consent of all the partners. Therefore, Inder cannot be admitted as partner because Charu has objected to it. Mustration 2. (Oral Agreement) Harry and Garry are partners in a firm. They do not have Partnership Deed but had agreed on following: (i) Salary to be paid to Harry @ & 10,000 per month. (ii) Garry to get commission @ 10% of Net Profit. Interest to be allowed on capitals @ 10% p.a.1. Double Entry Book Keeping—CBSE (iv) Interest to be charged on drawings @ 10% pa. (8) Partner cannot be admitted unless both the partners agree. How will be the following disputes between Harry and Garry resolved? 1. Garry demands salary in Hew of commission equal to the salary of Harry. 2. Harry demands that his son Sherry be admitted as partner for 25% share to be gy ‘ut of his share of profits. Garry does not agece to Sherry’s admission as partner, Solution: Partnership agreement may be writen or oral. Therefore, the terms agreed 0 Harry and Garry isa valid agreement. 1. The demand of Garry to be paid salary equal to the salary of Harry is mot vali in view of agreement of payment of commission. 2 Sherry will not be admitted as partner because Garry has objected to his becoming a partne. ly betwee Charge against Profit and Appropriation of Profit | ‘Charge against Profit means that itis an expense forthe firm and is paid whether the firme profit or incurs loss Interest on Loan by Partner, Rent Payable to 2 partner and Manager's Commission, etc, 2 ‘charge against profit and are payable whether the firm earns profit oF incurs loss. Appropriation of profit means distribution of ret profit and interest on Drawings among partnes as Salary/Remuneration, etc. and transfer to reserves. Difference between Charge against Profit and Appropriation of Profit Garye operate ren earners under erent head Pane Deed. Its tndered tothe deb ete PAD Les ogreration Recount. [i asrapated fer accounting oa ae | Sab partners intrest on epi wee? fa Gene Reserve ee, {INTEREST ON LOAN BY PARTNER AND LOAN BY FIRMTOTHEPARTNER Interest on Loan by Partner to the Firm If a partner has given loan or advance to the firm, interest will be paid to the partner t® ‘agreed rate as writen inthe Partnership Deed or as agreed otherwi In the absence of an agreement, the Indian Partnership Act, 1932 will apply and the let partner will be paid interest © 6% pa. om loon ammount Nature of interest on Loan by Partner Interest on loan by partner isa charge against prof It means that interest will be allowedlf®!’ the parner on the loan amount whether the firm eas profit or incurs lose, etermon rt rotors ry Pity | Raatowedtein ho: “eames | ets a pce ee en an by oe Chapter Accounting for Partnership Frms—Fundamentals 1.7 Accounting Treatment Interest on loan by partner is credited to Pariner’s Loan Account. Journal entries passed are: (© Onatlowing interest on toon by Portner: Interest on Loan by Partner Ae To Loan by Partner Ae oF interest Outstanding Ne (0 On payment ofinerest ‘Loan by Partner A/c oF Ineest Outstanding Ne To Cash/Bank Ne De (ii) To close the interest on Loan by Partner Ae: Profit & Loss Ne To Interest on Loan by Parnes Ne Loan Account and Capital Aecount of a partner a account because: 1. As per the Indian Partnership Act, 1932, loan by a partner is repayable before repayment of capital to partne' of the frm; and 2. In the absence of an agreement, partners get interest # 6% pa. on loan or advance by him or her whereas they do not get interest on capital De e separately maintained in the books of at the time of disolut Illustration 3. Akhil and Bhagat are partners sharing. profits and losses in ratio of 2: 3 with capitals of 2,00,000 and & 1,00,000 respectively. On Ist October, 2023, Akhil and Bharat gave loans of 400,000 and @ 2,00,000 respectively to the firm. The partners have not agreed to the rate of interest payable on the loan by partner, Determine the amount of profit orloss for the yearended 31st March, 2024 in each ofthe following cases to be distributed betwoen the partners: If the Profit before interest forthe yeat is & 25,00, If the Profit before interest for the yea is 15,000. If the Loss before interest for the year is & 25,000. Case 1. Case 2, Case 3. ‘Solution: In the absence of Partnership Deed or Agreement, interest on loan by pattner is allowed at the ‘ate given in the Indian Partnership Act, 1932, ic, 6% pa. Case 1. Distributable Profit/Loss = Profit before Interest - Interest on Loan by Partners = 825,000 = 8 18,000" = 7,00, 2 x “Interest on Loan by Akhil (400,000 » 6/100 « 6/12) 12,000 Interest on Loan by Bharat (& 2,0,000» 6/100 612) 6,000 Total 18,000) Case 2, Distributable Profit/Loss = Profit before Interest - Interest on Loan by Partners = €15,000 -8 18,00 = & 3,000 (Loss). (Case 3. Distributable Profit/Loss = Loss before Interest + Interest on Loan by Partners = £25,000 + £18,000 = 8 43,000 (Loss.1 Double Entry Book Keeping—CBSE XI Mlustration 4. ‘Amit, Bimal and Chaman are partners sharing profits and losses equally. Amit and Chama gave loans to the firm on Ist October, 2023 of ¥ 1,00,000 and & 1,50,000 respectively. It is agreed that interest @ 9% p.a. will be paid on loan. Books of account of the firm are closed on Ist March every year. Interest on loan is yet to be paid as on 31st March, 2024. Pass Jourmal entries in the books of account of the firm and prepare Loan Accounts of the partners, Solution: Inthe Books of Amit Bimal and Charan JOURNAL Date | Partiurs a | Oct 1) Bankave 0 250.000 1 Loanby Amit Ae oo To toanby Chaman Nec 100 {oan fom partners Amit and Chama) aos March 31|lterest on Loan by Partners Ae De 11250 To Loanby Amit Acnterest Outstanding Ne aso To toan by Chaman Nnterst Outstanding Ne or {attest on loan by partners provided @ 9p) March 31/ Profit & toss Ale Naso To Interest on Loanby Partners Ale 20 | txerest on Laan by Parnes Aco tated to roft 8 oss eco) oe {LOANBY ANT ACCOUNT a Dae | Partials Toate | Paris Tee or 2B March 31| To Balance cfd 1o4s00| oct. 1 | By Bank We ron ao March 31) 8y inerestontoan by Partners Ae eo) ams Agrt_1| 0y Baoncetd oss m LOAN BY CHAMAN ACCOUNT. @ Date | Parla Poel we on March 31/ To Balanced by Banke sao 8 Interest on toan by Partners Ne os Ea | 20 | ort 1| 8 Balice bid 13619 (Chapter 1 - Accounting for Partnership Frms—Fundamentals 1.9. Mlustration 5, Vijay, Ajay and Suresh are partners sharing profits equally. Vijay had given loan to firm on 1st September, 2023 of € 2,00,000. I was agreed that interest will be paid © 12% pa. Interest was paid by cheque up to February, 2024 on Ist March, 2024 and balance was paid on 5th April, 2024. Pass the Journal entries for interest on loan by partner for the year ended 31st March, 2024. souRwat oe | ce March 1 Interest on Lean by Partner Ale Dr 2.000 To Bank Ac 12000 (interest paid for six months upto February, 2024) March 31 Taterest on Loan by Partner Ale De 2000 To Loan by Vjay Ac or Interest Outstanding Ale 22000 (interes for March, 2028 provided) March 31 | Profit @ Loss Ae 14000 To Intereston Loan by Partner Ale 14000 {interest on Loan by Vjay transfered tothe debit of Profit & Loss Account) Interest on Loan by the Firm to Partner A firm may give loan to a partner. Interest on Loan by the firm to a partner is charged at the agreed rate of interest if partners have agreed to charge interest, otherwise it is not charged. The Partnershi Act, 1932 does not provide for charging interest on loan to partners, If it is agreed to charge interest on loan to a partner, amount of interest charged is transferred in the credit of Profit & Loss Account and debited to Partner’s Capital Account (In case of Fluctuating Capitals) or Partner’s Current Account (Incase of Fixed Capitals), ‘The Journal entries are: (® For Charging interest on Loan to Partner: Partner's Capital/Current Ac Dr. To Interest on Loan to Partner AV¢ (Given) (i) interest on Loan to Partner is received: Cash/Bank Alc Dr To Partners CapitaliCurrent A/c (li). For Transfer of interest on Loan to Partner A/c to Profit & Loss A/c: Interest on Loan to Partner A/C De To Profit & Loss A/c1.8 Double Entry Book Keeping—CBSE XI Mustration 4. ‘Amit, Bimal and Chaman are partners sharing profits and losses equally. Amit and Chaman gave loans to the firm on Ist October, 2023 of € 1,00,000 and € 1,50,000 respectively. It is agreed that interest @ 9% p.a. will be paid on loan. Books of account of the firm are closed on, ist March every year. Interest on loan is yet to be paid as on 31st March, 2024. Pass Journal entries in the books of account of the firm and prepare Loan Accounts of the partners, Solutio Inthe Books of Amit Bimal and Chaman JOURNAL Dote | Particulars Ue 2023 oc. 1|Bankave oe. Cee) To Loan by Amit Ale ei To toanby Chaman Ale va {Loan from partners Amit and Chama 2a ‘March 31 Interest on Loan by Partners Ale ae or To Loan by Amit Alintrest Outstanding Ne pe To Loan by Chaman Nevinterest Outstanding Nc a (utereston loan by partners provided @ 9% pa) March 31 Profit toss Ale oe ne To Interest on Loan by Partners Ale pose Anterest on Loan by Pater Account waren to Pf Loss Account Lowen ae [rs tome [pec ome co Nach 31/0 eae rowan 1 |oy mete sans mm ‘March 31) By Interest on Loan by roca “= 14500 By Balance b/d 104500 ar can ACCOUNT 2 | Particulars t by Bon 13399 By Interest on Loan by Partners Nc 67 1 CChapter 1+ Accounting for Partnership Firms—Fundamentals 1.9 Illustration 5. Vijay, Ajay and Suresh are partners sharing profits equally. Vijay had given loan to firm on. 1st September, 2023 of € 2,00,000. It was agreed thal interest will be paid © 12% pa. Interest ‘was paid by cheque up to February, 2024 on Ist March, 2024 and balance was paid on Sth April, 2024. Pass the Journal entries for interest on loan by partner for the year ended 31st March, 2024. Solution: ‘March 1] Interest on Loan by Parner Alc De 12000 To Bank Nc 12000 interest pad for six months upto February, 2024) ‘March 31 Interest on Loan by Partner Ae De. 2000 To Loan by Vijay Ac or Interest Outstanding Ae 2000 Ainterest for March, 2024 provided) March 31| Profit @ Loss Ale be 14000 ‘To Interest on Loan by Partner Ac 14000 {Interest on Loan by Vijay transfered tothe debit of Profit & Loss Account) Interest on Loan by the Firm to Partner A firm may give loan to a partner. Interest on Loan by the firm to a partner is charged at the agreed rate of interest if partners have agreed to charge interest, otherwise itis not charged. ‘The Partnership Act, 1932 does not provide for charging interest on loan to partners. If it is agreed to charge interest on loan to a partner, amount of interest charged is transferred in the credit of Profit & Loss Account and debited to Partner’s Capital Account (In case of Fluctuating Capitals) or Partner's Current Account (In case of Fixed Capitals. The Journal entries are: For Charging interest on Loan to Partner: Partner's CapitalCurrent Alc Oe. To Interest on Loan to Partner A/c (Given) (i) interest on Loan to Partner Is received: CashiBank Alc br To Partner's Copital/Current A/c (li) For Transfer of tnterest on Loam to Partner A/c to Profit & Loss Alc Interest on Loan to Partner Ae 0 To Profit & Loss Aic1.10 Double Entry Hook Keeping —CHSEXI Mlustration 6, Dev, Jaspal and Prem are partners sharing profits equally. Prem had taken Joan from the fg, oon Ist January, 2024 of % 500,000. What Journal entries will be passed if (a) Rate of interest is not agreed: and (b) Rate of interest to be charged Is agreed ¢ 10% p.a.? Solution: (a) In the absence of agreement, interest will not be charged on Loan to Partner. Heng, Journal entry will not be passed. ‘Moreh 31| Prem’ Capital Mc To Intereston Loan to Partner Ac (interest charged for three months upto Mach, 2024) interest on Loan to Partner AC To Profit & Loss Ale (terest en Loan to Prem transfered tthe credit of rot & Loss Account) March 31 Illustration 7. Rakesh, Gaurav and Kabir are partners ina firm. Firm had given loan to Kabir on 1st Octobe, 2023 of 8 6,00,000. Interest was agreed to be charged @ 10% p.a. Interest was paid by cheyue up to February, 2024 by Kabir on 10th March, 2024 and balance was yet to be paid by him Pass the Journal entries for interest on loan by partner for the year ended 31st March, 2024, Solution: oman Date Parcs @ | aw am | March 10] Bank Ave |} To Interest on Loan to Partner Ale {terest pd by Kab for fue month up to Feb 2038) March 31 [abv To Interest enteanto Partner NC (interest for March 2028 charged March 31 terest en canto Parner Ae ~Be To Froftblos Al Unterest on Loan to Kabir transferred to the credit of Proft& Loss Account) 50 sno Rent Paid or Payable toa Partner Rent pai or payatle to a partner, isa charge against profit. It sa charge against profit because ret payable to a partner for letting the frm use his personal property for business. Rent may be paid (cit ‘cash or by cheque) during the year to the partner or it may have become due but és not yet paid, ie, ‘payable. When it is paid or payable itis debited to Rent Account and evedited to Cash/Bank Account or Payable Account. At the end ofthe year, Rent Account is transferred to the debit of Profit & Loss Acc? Chapter 1» Accounting for Partnership Femns—Fundamentals 1.1 Journal entries inthis case will be as follows: (0) When rents paid in cash or by cheque: Rent A/c br To. CashBank Alc (Rent paid in cashicheque fr) (i) When rent is payable Rent A Oe To Rent Payable Ale {Rent payable for.) Gi) When Rent Accounts transferred to Profit & Loss Account: Profit & Loss Alc De To Rent Alc (Rent Account transfered to Profit & Loss Account) IMlustration 8 (Rent paid and Rent payable). ‘Arun and Raman are partners with fixed capitals of & 10,00,000 and % 3,00,000 respectively. Raman has given his property on rent to the firm on Ist April, 2023 at a monthly rent of 85,000, The firm paid him rent from April, 2023 to February, 2024 by cheque on Ist March, 2024. Rent for the ‘month of March was yet to be paid. Pass the Journal entries for the above transactions. Solution: JOURNAL To Bank A/c (Cheque issued for rent for the months Apri, 2023 to February, 2028) To Rent Payable Nc (Rent payable for the month of March, 2024) To Rent Alc 4 000 Rent Account ransered 0 Protos Account Manager's Commission Manager is an employee of the firm. Therefore, the amount payable to him/her as commission is in the nature of salary. It is payable whether the firm eas profit or incurs loss. Manager's, Commission is a charge against profit and is transferred to the debit of Profit & Loss Account. ~ DISTRIBUTION OF PROFIT AMONG PARTNERS: PROFIT & LOSS APPROPRIATION ACCOUNT ~ A firm prepares Trading Account, Profit & Loss Account and Balance Sheet. In addition, a partnership firm prepares Profit & Loss Appropriation Account to which, per the Profit & Loss Account is transferred. Net Profit or Loss is distributed (ie, between/among partners as per the Partnership Deed or agreement raft or net loss as ppropriatedies 4, Partnership Deed | Preparation of this account is not guided by the | Preparation of this account is guided by the or Agreement Partnership Deed or Agreement. Partnership Deed or Agreement. 5. Matching While preparing this account, Matching Principle | While preparing this account, Matching Principle Principle (ie, expense is matched against revenue) is | is not followed being not applicable. followed. Let us understand complete set of final accounts of a partnership firm with the help of illustration for better understanding of Profit & Loss Appropriation Account. Illustration 9. Ayub and Amit are partners in M/s Amrit Papers sharing profits and losses equally. Following trial balance is prepared from the books of account as at 31st March, 2024: Particulars. Particulars cr.) Opening Stock Sales 12,50,000 Purchases Purchases Return 10,000 Sales Return Interest on Loan to Ayub 600 Salary and Wages Sundry Creditors 70,000 Rent Loan by Amit 20,000 General Expenses Capital Accounts: Interest on Loan by Amit Ayub 4,00,000 Sundry Debtors Amit 3,85,000 Furniture and Fixtures Computers Machinery Loan to Ayub Cash at Bank Cash in Hand Drawings: Ayub Amit 21,35,600toss Appropriation Aq ve at date after accounting fe Fe al (¥) Manager’s Commission is payable @ 1% of net sales, (i) Interest on Loan by Amit was paid on 3st March, 2024- Solution: itPapers ined mons ico yer Se 224 ae Share of Profit ess: Drawings ‘Amit ‘Add: Interest on Capital ‘Share of Proft a (Chapter 1 Accounting for Partnership Firms—Fundamentals 1.17 BALANCE SHEET ost 31st March, 2024 To Opening Siok Nc | By Ses Te Purchases Ave enaco oe sistas 25000 | 125 less ParchasesRetan raat | 750000] fy Osing tk 5, To Gress rot transered to Prot ess Account 430000 Iie eae = oe PROFIT LOSS ACCOUNT tba ended st Mach 2028 & “To SalayandiagesNe——=~=~=S~*«”d*«( 00] By Gs roft—tansfered 008 ‘To Managers Commision Nc 12350] fom Tadng Acount (vssoft 1225000) yee onLoanto Ayub Alc Cy Yo Rent Nc 1aa00 Add: Outstacing fet eco | 120000 To General Expenses Maa eo Interest on aunty Ant Ne 120) To Depreciation Ave Furetre and Faases noo ove ee Net Profit Machinery poata | soon To Net roft ansleed ta oft boss Appropration Acourt a) et aa eet oe 7 Or [PROFIT & LOSS APPROPRIATION ACCOUNT forthe year ended 31st March, 2024 G Partcuns [Lt ranean i) bs To interest on Capital ACS 5 Froft Loss Ac het Proft) ant ay we amit am] 97400 To Profit ansforedta Distributable Aydbs Coptal Ne 25 41 Prot ‘Amit Capital nsA 20M Mach 31 To Bauncecid | | | Working Notes: 1. Interest on Loan by Tom = axa by Tom=% 2,00,000 x +> +555 = 5.000 ‘Interest on Loanis tobe paid @ 6% pa. 2. Interest on loan to Jerry will ot be charged inthe absence of agreement, Inthe absence of agreement between partners forinterestontoan by partnersandlloan to partne's Provisionet {Indian Partnership Ac, 1932 wil apply. It prescribes that Interest on Loan by Partners is payable @ 6%pa.k does not provide for charging of intrest on loan to partnet. ‘3. Net Profit after Interest on Loan by Tom = 8 4,30,000 - % 5,000 =% 4,25,000, which is shared equally because the profit-sharing ratios not given. Mlustration 11 (Rent PayabletoaPartnerand Preparation of Profit & Loss Appropriation Account), Aman and Boman are partners sharing profits equally. Business is being carried from the Property owned by Aman ona yearly rent of 24,000. Aman isto get salary of €1,20,000 p.a. and Bomanis to get commission @5% of net sales, which during the year was ® 30,00,000. Profit for the year ended 31st March, 2024 before providing forrent was®5,00,000. Prepare Profit & Loss Appropriation Account forthe year ended 31st March, 2024. Solution: ‘PROFIT & LOSS APPROPRIATION ACCOUNT or. forthe yeorended 31st March 2024 Particulars | partictas To Amanis Capital A/c (Salary) 1120000 | By ProftaLoss Ac (Net Prot) To Boman’ Capital Ac (Commission) | To Profit transfered to: ‘Amanis Capital Ne Boman’ Capital Alc {€5,00000 8 24,000 Rent} 13.000 Note: If profit before expense interest on oan by partner orrent payable to partner) is given, itis deducted to" siven profit in Profit Loss Appropriation Account, ass shown above. Chapter 1 Accounting for Partnership Firms—Fundsmentals 4. Illustration 12 (Profit and Profit & Loss Appropriation Account). ‘Aseem and Nihar started business on Ist April, 2023 with capitals of 8 3,00,000 and & respectively. According to the Partnership Deed, Nihar isto get salary of 85,000 Ascem is to get 10% commission on Profit after allowing salary to Nihar and allowed on capitals @ 6% p.a. Profit-sharin ratio between the two partners is 3:2. seem gave loan of 1,00,000 to the firm on Ist April, 023, Interest on loan was agreed to be alors @ 8% pa. Nihar was given loan of %2,00,000 on 1st October, 2023 on which interest Pass journal entries for distribution ono prot and prepare Profit & Loss Appropriation Account, ‘The firm closes its books of account on 31st March every year. owe JOURNAL Profit & Loss fe To Profit & Loss Appropriation Ale (ransler of net profit to Prof & Loss Appropriation Account) (WH 2) arch 31 Nar Slory Ale To Nihar’s Capital Ac {Salary due to Nihat@ 5,000 per month) ‘Aseer’s Commission Ale oe To Aseem's Capital Nc \ {Commission due to Aseem) | March 31 [Profit Loss Appropriation Ale pe | To Nina’ Salary Me To Ascems Commission Ale (Salaryand commission to Partners transferred to Profit & Loss ‘Appropriation Account) Interest on Capital A/c (Dr. To Aseemis Capital Ne f To Nihars Capital Ae {terest on capitals allowed to partners @ 6a) Profit Loss Appropiton Ve “De To Interest on Capital A/c (interest on capitals transferred to Profit & Loss Appropriation Account) Profit & Loss Appropiion Ale “De ‘To Aseem’s Capital A/c (® 1,38,300 x 3/5) ‘To Nihar's Capital A/c (8 1,38,300 x 2/5) (Ditton of profit among the patnes) 18700 March 31 18700 73700 60.000 18700 ‘March 31 30000 18000 12000 March 31 30000 30000 March 31 138300 82,980 $53201.20 boubte Entry Bock Keeping —CHSER b3 snort At0SSAPPROPRATION ACCOUNT the er ended 3st March, 2024 n Pain ond Le 7 Suny Nhe Colne io] ition need | 2 12 Commison—Aleem Captt A yar00} - astatd-%2000 Managers Comm Te tneestencaptal—aseemvCapitae | 19000]; R000 Unters on Laan by Partne) Te Intereston aptat—NhurhCaptslate } 12000) + €A000(nterest on Loan to Partner] Ta Prottanfened ta AscemsCapatAcius) 82580 Nan petAc2s) ssa] sexo Eee = Mlustration 13, Raj Mchak and Divya were partners ina firm sharing profits and losses in the ratio of 2: 2:1, Their respective capitals were: ¥ 600,000, € 4,00,000 and € 2,00,000. The partnership dees provided forthe following: (a) Interest on capital @ 8% per annum. (b) Interest on drawings @ 6% per annum. {c) Interest on partners’ loan to the firm @ 5% per annum. During the year, Raj had withdrawn % 12000 on Ist October, 2021, while Mehak withdrew 60,000 on ist December, 021. ‘On Ist January, 2021, Divya had given a loan of 1,20,000 to the firm. Pass the necessary Journal entries in the books ofthe firm for the following transactions fe the year ended 31st March, 2022: () Allowing interest on Raj's capital (ii) Charging interest on Mehak’s drawings. (ii) Providing interest on loan given to the firm by Divya. Also pass transfer entries in the Profit & Loss Account/Profit& Loss Appropri as the case may be. Solutior (a) ietereston Capt Ne | Yo pajscaptat ac P6onoxn ven20 rest cr Raj capa provided) (6) Mehaks Copa Ale To Snterest on Orang Me (60000 » 6/10 12) tee chargrd on Mehl’ damit) ‘Chapter 1 - Accounting fr Partnership Firms—Fundamentals 1.21 (o) terest on Loan Ave (1.20000 x 5/100) a 6000 To DivyasLoan Ale cen (interest on loan provided to Divya “Transfer Entries Profit & Loss Appropriation Alc De 2000 To Interest on Capital Nc ‘2000 Artereston a's capital transfered to Prof & Loss Appropriation Ac) ‘a interest on Drawings Ate De 1200 : To Profit &Loss Appropriation Nic 1200 (erst on Mehak’s dawings transferred to Profit Loss Appropatn Ac) (aa Poet Loss Ave De 6000 To Intereston Loan A 00 terest on Divas oan transferred to Profit Loss Account) Tilustration 14 (Loss and Profit & Loss Appropriation Account). X and Y started business on 1st April, 2023 with capitals of & 5,00,000 each. As per the Partnership Deed, both X and Y are to get monthly salary of € 10,000 each and interest on ‘capitals is € 50,000 each. Interest on Drawings are: X—8 3,000 and Y—%5,000. During the year ended 31st March, 2024, the firm incurred a loss of & 2,00,000. Pass Journal entries for the above and prepare Profit & Loss Appropriation Account. The firm loses its accounts on 31st March every year. Solution: JOURNAL ‘March 31 Profit & Loss Appropriation Nc z 200000 To Proft& Loss Ae 2000 Ciansferof net toss) March 31 | X3Gopital Ae oe 3.000 Ys Capital Ae = 000 To Interest on Drawings Alc 000 interest charged on drawings) ‘March 31 Interest on Drawings Ne De aon To Profit & Loss Appropriation Ac ‘4000 terest on drawings transferred to Profit & Loss Appropriation A) March 31 [Xs Capital Vc Ys Copital Ne To Profit &Loss Appropriation Nic (Loss transferred to Partners Capital Accounts) gz a6 i