Question 41 Chapter 2 of +2-A – T.S. Grewal 12 Class Part – A Vol. 1

Question 41 Chapter 2 of +2-A

Question 41 Chapter 2 of +2-A

41. Simrat and Bir are partners in a firm sharing profits and losses in the ratio of 3: 2. On 31st  March 2019 after closing the books of account, their Capital Accounts stood at 4,80,000 and 6,00,000 respectively. On 1st May 2018, Simrat introduced an additional capital of 1,20,000 and Bir withdrew 60,000 from his capital. On 1st October 2018, Simrat withdrew 2,40,000 from her capital and Bir introduced 3,00,000. Interest on capital is allowed at 6% p.a. Subsequently, it was noticed that interest on capital @ 6% p.a. had been omitted. Profit for the year ended 31st March 2019 amounted to 2,40,000 and the partners’ drawings had been: Simrat – 1,20,000 and Bir – 60,000. Compute the interest on capital if the capitals are a fixed, and b fluctuating.

The solution of Question 41 Chapter 2 of +2-A

:

Calculation of Interest on Simrat’s Capital
In this case, capital is fixed so, Drawing out of profit and share of profit will not be treated in the capital account because these are treated in the current account of Partners.

Period

Simrat’s Opening Capital
(A)

Introduction/ (Withdrawal)
(B)
Simrat’s Closing Capital
(C = A-B)

Period Left after
(D)

Product
(E=A*B)

April 01, 2018 to April 30, 2018 6,00,000 *1 0 6,00,000 1 6,00,000
May 01, 2018 to Sep 30,2019 6,00,000 + 1,20,000 7,20,000 5 36,00,000
Oct 01, 2018 to March 31,2019 7,20,000 – 2,40,000 4,80,000 6 28,80,000
Sum of Product         70,80,000
Interest on Capital = Sum of Product X Rate of Interest X 1/12  
Interest on Simrat’s Capital = 70,80,000 X 6 X 1
100 12

Interest on Simrat’s Capital  = 35,400/-

Calculation of Interest on Bir’s Capital

Period

Bir’s Opening Capital
(A)

Introduction/ (Withdrawal)
(B)
Bir’s Closing Capital
(C = A-B)

Period Left after
(D)

Product
(E=A*B)

April 01, 2018 to April 30, 2018 3,60,000 *1 0 3,60,000 1 3,60,000
May 01, 2018 to Sep 30,2019 3,60,000 – 60,000 3,60,000 5 15,00,000
Oct 01, 2018 to March 31,2019 3,60,000 + 3,00,000 6,00,000 6 36,00,000
Sum of Product         54,60,000
Interest on Capital = Sum of Product X Rate of Interest X 1/12  
Interest on Bir’s Capital = 54,60,000 X 6 X 1
100 12

Interest on Bir’s Capital = 27,300/-
 

Calculation of opening balance of Capital
In this case, capital is fixed so, Drawing out of profit and share of profit will not be treated in the capital account because these are treated in the current account of Partners.

Particulars

Amount of Simrat’s Capital
Amount of Bir’s Capital
Capital at the end 4,80,000 6,00,000
Less: Fresh capital introduced 1,20,000 3,00,000
Add:  Drawings During the year from capital

2,40,000 60,000
Capital at the beginning 6,00,000 3,60,000

 

Case II

Calculation of Interest on Simrat’s Capital
In this case, Profit and drawing out of profit will be credited in the end of the year. So, no interest is calculated on these amounts.

Period

Simrat’s Opening Capital
(A)

Introduction/ (Withdrawal)
(B)
Simrat’s Closing Capital
(C = A-B)

Period Left after
(D)

Product
(E=A*B)

April 01, 2018 to April 30, 2018 5,76,000 0 0 1 5,76,000
May 01, 2018 to Sep 30,2019 5,76,000 + 1,20,000 6,96,000 5 34,80,000
Oct 01, 2018 to March 31,2019 6,96,000 – 2,40,000 4,56,000 6 27,36,000
Sum of Product         67,92,000
Interest on Capital = Sum of Product X Rate of Interest X 1/12
Interest on Simrat’s Capital = 67,92,000 X 6 X 1
100 12

Interest on Simrat’s Capital  = 33,960/-

Calculation of Interest on Bir’s Capital

Period

Bir’s Opening Capital
(A)

Introduction/ (Withdrawal)
(B)
Bir’s Closing Capital
(C = A-B)

Period Left after
(D)

Product
(E=A*B)

April 01, 2018 to April 30, 2018 3,24,000 0 3,24,000 1 3,24,000
May 01, 2018 to Sep 30,2019 3,24,000 – 60,000 2,64,000 5 13,20,000
Oct 01, 2018 to March 31,2019 2,64,000 + 3,00,000 5,64,000 6 33,84,000
Sum of Product         50,28,000
Interest on Capital = Sum of Product X Rate of Interest X 1/12
Interest on Bir’s Capital = 50,28,000 X 6 X 1
100 12

Interest on Bir’s Capital = 25,140/-

Calculation of opening balance of Capital

In this case, capital is fixed so, Drawing out of profit and share of profit will not be treated in the capital account because these are treated in the current account of Partners.

 

Particulars

Amount of Simrat’s Capital
Amount of Bir’s Capital
Capital at the end 4,80,000 6,00,000
Less: Fresh capital introduced 1,20,000 3,00,000
Profit already credited 1,44,000 96,000
Add:  Drawings During the year from capital

2,40,000 60,000
Drawings During the year out of Profit 1,20,000 60,000
Capital at the beginning 5,76,000 3,24,000

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Also, Check out the solved question of previous Chapters: –

T.S. Grewal’s Double Entry Book Keeping +2 (Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms)

  • Chapter No. 1 – Financial Statement of Not-For-Profit Organisations
  • Chapter No. 2 – Accounting for Partnership Firms – Fundamentals
  • Chapter No. 3 – Goodwill: Nature and Valuation
  • Chapter No. 4 – Change in Profit-Sharing Ratio Among the Existing Partners
  • Chapter No. 5 – Admission of a Partner
  • Chapter No. 6 – Retirement/Death of a Partner
  • Chapter No. 7 – Dissolution of a Partnership Firm

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

  • Chapter No. 1 – Financial Statements of a Company
  • Chapter No. 2 – Financial Statement Analysis 
  • Chapter No. 3 – Tools of Financial Statement Analysis – Comparative Statements and Common- Size Statements
  • Chapter No. 4 – Accounting Ratios
  • Chapter No. 5 – Cash Flow Statement

 

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2 Book 1 min - Question 41 Chapter 2 of +2-A - T.S. Grewal 12 Class Part - A Vol. 1
Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms

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