FUNDAMENTAL & DISSOLUTION OF PARTNERSHIP

Time Allowed: 3/2 Hrs. M.M. 50

Q.1. If profit of the firm is less than interest on capital, so, what will be amount charged for interest on
capital. (Mark-1)

Q.2. Differentiate between fixed and fluctuating capital. (Mark-1)

Q.3. In which circumstances, balance of fixed capital account change. (Mark-1)

Q.4. How will you differentiate dissolution of firm and dissolution of partnership? (Mark-1)

Q.5. If there is a profit on dissolution,it will be distributed after allowing interest on capital as may be allowed
by the partnership. (Mark-1)

Q.6. A, B and C are partners in a firm sharing profits and losses in the ratio of 2:2:1. Their capitals (fixed) are
Rs. 1,00,000, Rs. 80,000 and Rs. 70,000 respectively. For the year 2013, interest on capital was credited to
them @ 9% p.a. instead of 12%. Give the adjusting journal entry. (Marks-3)

Q7. A, B and C are partners in a firm. According to the partnership deed, the partners are entitled to draw
Rs.7,000 per month. On the 1st day of every month A,B and C drew Rs. 7,000,Rs.6,000, and Rs. 5,000
respectively. Interest on capitals and interest on drawings is fixed at 8% and 10% respectively. Profit for
the year ended 31st Dec.2013 was Rs. 7,55,000 out of which Rs.2,00,000 are to be transferred to general
reserve. B and C are entitled to receive a salary of Rs. 30,000 and Rs. 45,000 p.a. respectively and A is
entitled to receive commission @ 10% on net distributable profits after charging such commission. On 1 st
jan.2013 the balance of their capital accounts were Rs. 5,00,000, Rs. 4,00,000 and Rs. 3,50,000
respectively. You are required to show the profit and loss appropriation account for the year ended 31 st
Dec, 2013. (Marks-4)

Q.8. A, B & C are partners in a firm on 1 st jan.2013. There capitals stood at Rs. 50,000, 25,000, 25,000
respectively.As per the provision of the Partnership deed:

(a) C was entitled for a salary of Rs. 1,500 per month.

(b) Partners were entitled to interest on capital at 5% p.a.
(c) Profits were to be shared in the ratio of capitals.

Immediately after the allocation of Rs. 75,000 as profit for the year ended 31 st Dec.2013, it was
discovered that in arriving at the profit for 2013, the following two items & already mentioned above
have been ignored:

(a) Outstanding expenses of Rs. 7,000 and

(b) Accrued interest on investment of Rs. 4,000.

Pass an adjusting entry to rectify the above error. (Marks-6)

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Q.9. On 1st Jan. 2013, A and B commenced business with an initial capital of Rs. 2,00,000 and Rs. 3,00,000 in
their respective accounts. The terms of the partnership agreement are:

(a) Profits/losses be shared in the ratio of 2:3 between A and B.

(b) Partners shall be entitled to interest on capital at the commencement of each year at 6% p.a.
(c) Interest on drawings shall be charged at 8% p.a.

During the year ended 31st dec.2013 the firm made a profit of Rs. 1,92,800 before adjustment of interest
on capital and drawings. ‘A’ withdraws during the year Rs. 30,000 each at the end of every quarter
commencing from 30th june, 2013 and Mr. B withdraw Rs.3,000 at the beginning of every month. Mr. C
becomes a partner who will receive Rs. 50,000 minimum profit in the firm for the 1/6 th share of profits.
You are required to prepare the profit and loss appropriation account and capital accounts of the
partners for the year. (Marks-6)

Q.10. Following is the Balance Sheet of Ramesh And Suresh on 28 th feburary,2012:

Liabilities Rs. Assets Rs.

Sundry Creditors 20,000 Land 40,000

On the above
Bills Payable 40,000 Furniture & fittings 28,000
date, Ramesh and
Capital A/cs: Stock 10,000 Suresh
decided to
Ramesh 30,000 Debtors 12,000 dissolve the
firm. Ramesh took
Suresh 30,000 60000 Cash 10,000
over the Creditors
and Goodwill 20,000 Suresh took
over the Bills
Payable.
Assets
1,20,000 1,20,000
realized as
follow:
Debtors Rs.9,000;Furniture Rs.21,000;Stock Rs.6,000;Land & Building Rs.60,000.Expenses of realization paid by
Ramesh were Rs.1,200. A B/R for Rs.5000 discounted at 5% before 3 months it was dishonoured on maturity &
net amount realized only 60 paisa in a rupee. A unrecorded creditor for Rs.7,000 were met & takeover the
typewriter (which is not recorded in the books worth Rs.6,000 at Rs.4,500.The Firm had appointed to Mr.Suresh
for the purpose of dissolution at agreed amount 12,000 and he bear all expense on realization.Actual expense
were Rs.16,200 including Rs.7,500 paid by Suresh only.

Prepare the Realization Account, Cash Account and Partner’s Capital Accounts to close the books of the
firm. (Mark-6)

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Q.11. Pass the necessary Journal entries for the following transactions at the time of dissolution of the firm.
Assets and external liabilities have been transferred to Realization Account .Pass the Journal entries to
effect the following:

a. Bank Loan of Rs.12, 000 is paid off.

b. A was to bear all expenses of realization for which he is given a commission of Rs.400.
c. Deferred advertisement Expenditure Account appeared in the books at Rs.28,000.
d. Stock worth Rs.1,600 was taken over by B at Rs.1,200.
e. Creditors worth Rs.90,000 already transferred to realization and they taken over furniture for
Rs.45,000 and his settlement after 2% discount.
f. An unrecorded computer realized Rs.7,000. (Mark-6)

Q.12 The following is balance sheet of Vishnu, Sanjiv and Sudhir, as on 31 st Dec. 2013:

Liabilities Rs. Assets Rs.

Sundry Creditors 18,000 Cash 8,000

Bills Payable 20,000 bills receivable 12,000

Mrs. Vishnu’s loan 20,000 Stock 25,000

Outstanding salary 5,000 Sundry Debtors 40,000

Investment fluctuation 10,000 Less: provision for doubtful

fund debts 4,000 36,000

Workmen’s compensation
15,000 Land and Buildings 50,000
fund

Capital A/cs: Furniture 10,000

Vishnu 40,000 Typewriters 5,000

Sanjiv 30,000 Investments 30,000

Sudhir 18,000
88,000

1,76,000 1,76,000

The profit and loss sharing ratios of the partners are 5:3:2. At the above date, partners decide to dissolve
the firm. The assets realized are as follows:

Bills receivable were realized at a discount of 5%. Debtors were all good. Stock realized was Rs. 22,000.
Land and buildings realized at 40% higher than the book value. Furniture was sold for Rs. 8,000 by
auction and auctioneer’s commission amounted to Rs. 500. Typewriters were taken over by Vishnu for an

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 agreed valuation of Rs. 3,000. Investments were sold in the open market at a price of Rs 35,000, for
which a commission of Rs. 600 was paid to the broker. Bills payable were paid at full amount. Creditors,
however, agreed to accept 10% less. All other liabilities were paid off at their book value. The firm
retrenched their employees three months before the dissolution of the firm and firm had to pay Rs.
20,000 as compensation. This liability was not appearing in the above balance sheet.

Close books of the firm by preparing realization account, partners’ capital accounts, and bank account.
(Mark-6)

Q.13. A and B are partners sharing profits and losses in the ratio of 3:1.On 1 st April,2012 their capitals were : A
Rs.50,000 and B Rs.30,000. During the year ended 31 st March ,2013, they earned a net profit of
Rs.74,000.The terms of Partnership are:

(i) Interest on capital is to be charged @ 6% p.a.

(ii) A will get commission at 2% on turnover .B will get salary of Rs.500 per month.

(ii) B will get commission of 5% on profits after deduction all allowance including such
commission.
(iii) A is entitled to a rent of Rs.2,000 per month for the use of his premises by the firm.

It is paid to him by cheque at the end of every month. Partners’ drawings for the year were:A Rs.8,000
and B Rs.6,000 . Turnover for the year was Rs.3,00,000. After considering the above factors ,you are
required to Prepare the Profit and Loss Appropiration A/c and the Capital accounts of the Partners.

(Mark-8)