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WorkSheet: Fundamentals of Partnership Firm

1. A and B are partners sharing profits and losses in 3: 2,having capitals of

Rs. 2,00,000 and Rs. 1,00,000 respectively. Interest on capital is allowed
@ 6% p.a. The net profit for the year ended is Rs. 15,000. Prepare profit
and Loss appropriation A/c and pass journal entries.
Ans: IOC A 10,000, B- 5,000

2. P and Q are partners sharing profits and losses in 2:3. Their capitals are
Rs.3,00,000 and Rs.. 2,00,000 respectively. Interest is to be allowed on
capitals @ 6% p.a whether the firm earns profits or incurs loss. Profit
before allowing interest on capitals is Rs. 25,000. Prepare profit and loss
appropriation A/c and pass journal entries .(ans:Loss 5000)

3. X and Y are Partners sharing profits and losses in 2:1 with capitals of Rs
4,00,000 and Rs. 2,00,000 respectively. Interest on capital is to be
allowed @ 10% p.a.Prepare profit and loss appropriation a/c and Pass
the journal entries for the year ended 31st march ,2023 in each of the
following cases:
a) If partnership deed is silent for interest on capital and the profit for
the year is Rs.63,000.
b) If Partnership deed provides for interest on capital @ 10% p.a and
loss for the year is. Rs.60,000.
c) If Partnership deed provides for interest on capital @ 10% p.a and
profit for the year is. Rs.69,000.
d) If partnership deed provides for interest on capital @ 10 %p.a as a
charge on profit and profit for the year is Rs.69,000.
e) If partnership deed provides for interest on capital @ 10 %p.a as a
charge on profit and profit for the year is Rs.9,000.
f) If partnership deed provides for interest on capital @ 10 %p.a as a
charge on profit and profit for the year is Rs.60,000.
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4. E, F and G are partners sharing profits in the ratio of 3:3:2. According to

the partnership agreement, G is to get a minimum amount of ₹80,000 as
his share of profits every year and any deficiency on this account is to be
personally borne by E. The net profit for the year ended 31st March
2021 amounted to ₹3,12 ,000. Calculate the amount of deficiency to be
borne by E? (A) ₹1,000 (B) ₹4,000 (C) ₹8,000 (D) ₹2,000
5. In the absence of partnership deed, a partner is entitled to an interest
on the amount of additional capital advanced by him to the firm at a
rate of: (A) entitled for 6% p.a. on their additional capital, only when
there are profits. (B) entitled for 10% p.a. on their additional capital (C)
entitled for 12% p.a. on their additional capital (D) not entitled for any
interest on their additional capitals.
6. A, B and C are partners, their partnership deed provides for interest on
drawings at 8% per annum. B withdrew a fixed amount in the middle of
every month and his interest on drawings amounted to ₹4,800 at the
end of the year. What was the amount of his monthly drawings? (A)
₹10,000. (B) ₹5,000. (C) ₹1,20,000. (D) ₹48,000.
7. Abhay and Baldwin are partners sharing profit in the ratio 3:1. On 31st
March 2021, firm’s net profit is ₹1,25,000. The partnership deed
provided interest on capital to Abhay and Baldwin ₹15,000 & ₹10,000
respectively and Interest on drawings for the year amounted to ₹6000
from Abhay and ₹4000 from Baldwin. Abhay is also entitled to
commission @10% on net divisible profits. Calculate profit to be
transferred to Partners Capital A/c’s.(Ans. ₹1,00,000 )
8. .L, M, and N were partners in firm sharing profit in the ratio of 3 : 2: 1.
Their capitals were L Rs 4,00,000 , M Rs 5,00,000 and N Rs 6,00,000
respectively. The partnership deed provided for the following:

1. Interest on capital @ 6% p.a.

2. Salary of Rs 30,000 p.a. to N.
3. Interest on partner’s drawings will be charged @ 12% p.a.
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During the year ended 31.3.2009, the firm earned a profit of Rs 2,70,000.
L withdrew Rs 10,000 on 1.4.2008. M withdrew Rs 12,000 on
30.09.2008. and N withdrew Rs 15,000 on 31.12.2008. Prepare profit
and loss appropriation account and Partners’ capital a/c for the year
ended 31.3.2009.

(ans profit Rs.152370, capital a/c balance L 412800, M 517280, N

650,550)

9.The partners of a firm, Alia, Bhanu and Chand distributed the profits for the
year ended 31st March, 2017, ₹ 80,000 in the ratio of 3:3:2 without providing
for the following adjustments: a) Alia and Chand were entitled to a salary of ₹
1,500 each p.m. b) Bhanu was entitled for a salary of ₹ 4,000 p.a. Pass the
adjustment entry for the above adjustments in the books of the firm. Show
workings clearly. ( ans bhanu dr 11000,chand cr 3000, Aliya cr 8000

10. On 1st April 2019 Jay and Vijay entered into partnership sharing profits and
losses in 3:2.They contributed capital of Rs. 80,000 and Rs. 50,000 respectively.
The partnership provided that interest on capital shall be allowed @9%p.a.
During the year the firm earned a profit of Rs. 7800.Prepare Profit and Loss
Appropriation Account for the year ended 31st march 2020.( Ans.jay 5400,
Vijay 7200

11.Gunjan and Pranjal are partners in a firm. Their capital accounts as on April
1, 2019 showed a balance of Rs 100,000 and Rs. 1,50,000 respectively. On 1st
july , 2019 Gunjan introduced additional capital of Rs 25,000 and Pranjal Rs
30,000. On 1st October Gunjan withdrew Rs. 15000 and on January 1, 2020
Pranjal withdrew Rs 7500 from their capitals. Interest is allowed @ 8%p.a.
(ans Gunjan Rs8900 Pranjal Rs 13650)

12.Arun and Varun were partners sharing profit and losses in 5:3.Their fixed
capital s on 1.4.2022 were Rs 60,000 and Rs 80,000 respectively.They agreed to
allow interest on capitall @12% p.a and to charge on drawings @ 15% p.a The
profit for the year ended 31.3.2023 before all above adjustments were Rs
12,600. The drawings made by Arun were Rs 2000 and by Varun Rs 4000
during the year. Prepare profit and loss appropriation a/c. The interest on
capital will be allowed even if the firm incurs loss. (ans loss Arun 2344, Varun
1406)
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13.A and B were partners ij a firm sharing profits in the ratio of 3:2.Their
balances as on 1st april 2019 were as under:

particulars A B

Capital a/c 3,00,000(cr) 2,00,000(cr)

Current a/c 1,00,000(cr) 28,000(dr)

The partnership provided that A was to be paid a salary of Rs 5000 p.m

whereas B was to get a commission of Rs 30,000 for the year. Interest on
capital was to be allowed @ 8% p.a whereas interest on drans owings was to
be charged @ 6% p.a. The drawings of A were Rs.3000 at the beginning of each
quarter while B withdrew Rs. 30,000 on 1st September 2019. The net profit of
the firm for the year before making the above adjustments was Rs. 1,20,000.
Prepare Profit and Loss Appropriation Account and partners’ capital and
Current Accounts.

( ans: P&L app profit 121500, current a/c A Cr 166058, B dr. 16058)

14.P , Q and R are partners in a firm Havind capitals Rs. 3,00,000, rs. 1,50,000,
Rs.!,50,000 respectively on 1st april 2022. As per the provisions of the
partnership deed:

a) R was to be allowed remuneration of rs. 36,000 p.er annum.

b) Interest @ 5% p.a. was to be allowed on capital

c) profits were to be distributed in the ratio of 2: 2: 1.

Ignoring the above terms net profit of Rs 1,80,000 for the year ended 31st
march 2023was distributed among the partners equally.

Pass the journal entries through profit and loss adjustment a/c to rectify the
errors.

15.On 31st March , 2023 the capitals of Raghav and Diya stood at Rs. 4,00,000
and Rs.3,00,000 respectively, after the necessary adjustment in respect of
drawings and net profit. Subsequently it was discovered that interest on capital
@ 10% p.a had been omitted. The net profit for the year ended 31st march ,
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2023 amounted to Rs.1,00,000. During the year ended 31st March, 2023
Raghav’s drawings were Rs. 2000 drawn at the beginning of each month, while
Diya’s drawings were Rs. 3000 drawn at the beginning of each quarter. Pass
the necessary adjustment entry.

15.Aman , Beena and Chaman entered into partnership on 1st October, 2021
to share profits and losses in 3:2:1. Aman personally guaranteed that chaman’s
share of profit after charging interest on capital @ 5%p.a would not be less
than rs. 30,000 in a year. The capital contributed were aman Rs. 3,00,000
Beena Rs. 2,00,000, and chaman Rs. 1,00,000. Profit for the period ended 31 st
March 2022 was Rs. 1,20,000. Prepare Profit and Loss Appropriation Account.
(ans: aman 52500, beena 35000, chaman 17500).

VALUATION OF GOODWILL

1. Dinesh and Mahesh are partners sharing profits and losses in the ratio of 3 : 2. They
admit Ramesh into partnership for 1/4th share in profits. Ramesh brings in his share
of goodwill in cash. Goodwill for this purpose shall be calculated at two years’
purchase of the weighted average normal profit of past three years. Weights being
assigned to each year 2017−1; 2018−2 and 2019−3. Profits of the last three years
were: 2017 − Profit ₹ 50,000 (including profits on sale of assets ₹ 5,000). 2018 − Loss
₹ 20,000 (including loss by fire ₹ 35,000). 2019 − Profit ₹ 70,000 (including insurance
claim received ₹ 18,000 and interest on investments and dividend received ₹ 8,000).
Calculate the value of goodwill.
ANS:69000
2. Raman and Daman are partners sharing profits in the ratio of 60: 40 and for the last
four years, they have been getting annual salaries of ₹ 50,000 and ₹ 40,000
respectively. The annual accounts have shown the following net profit before
charging partners’ salaries: Year ended 31st March, 2017 − ₹ 1,40,000; 2018 − ₹
1,01,000 and 2019 − ₹ 1,30,000. On 1st April, 2019, Zeenu is admitted to the
partnership for 1/4th share in profit (without any salary). Goodwill is to be valued at
four years’ purchase of weighted average profit of last three years (after partners’
salaries); Profits to be weighted as 1: 2: 3, the greatest weight being given to the last
year. Calculate the value of Goodwill .ans: Rs 1,28,000
3. The Goodwill of the a firm was valued at two years’ purchase of the average profit of
the last three years. The profits were as under:
2014-15 Rs 40,000 ( including an abnormal gain of Rs 10,000)
2015-16 Rs. 80,000(after charging an abnormal loss of Rs 20.000)
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2016-17 Rs 80,000
Calculate the amount of goodwill. Ans:Rs 1,40,000
4. A business earned average profits of Rs 6,00,000 during the last few years. The
normal rate of profits in the similar type of business is 10%. The total value of assets
and Liabilities of the business were Rs 22,00,000 and Rs 5,60,000 respectively.
Calculate value of goodwill of the firm by super profit method if the goodwill is
valued at two and half year’s purchase of super profits. Ans;Rs.10,90,000
5. The average profit earned by a firm is Rs 150,000 which includes undervaluation of
stock of Rs 10,000 on an average basis. The capital invested in the business is Rs
14,00,000 and the NRR is 7%. Calculate goodwill of the firm on the basis of 5 times
the super profit. Ans: Rs.3,10,000
6. Calculate goodwill of the firm on the basis of three years purchase of the average
profits of the last four years. The profi of the last four years were:
2017 Rs 20,200 2018 Rs 24,800 2019 Rs 20,000 2020 Rs 30,000
a) On September 1, 2019 a major plant repair was undertaken for Rs 6,000, which
was charged to revenue. The said sum is to be capitalised for goodwill calculation
subject to adjustment of depreciation of 10% p.a. on reducing balance method.
b) The closing stock for the year 2018 was overvalued by Rs 2400.
c) To cover management cost an annual charge of Rs 48,00 should be made for
purpose of goodwill valuation. Ans: Rs.60,765

9.A and B are partners sharing profits and losses equally. They decided to admit C for
an equal share in the profits. . The balance Sheet of the firm on c’s admission was as
follows:

Liabilities Rs. Assets Rs

Capitals Machinery 75,000
A 90,000
B 50,000 1,40,000
Reserve 20,000 Furniture 15,000
Loan 25,000 Stock 30,000
creditors 15,000 Debtors 20,000
Cash 50,000
Goodwill 10,000
2,00,000 2,00,000

The normal rate of return is12 % p.a. Average profit of the firm for the last four
years was Rs 30,000. Calculate firms goodwill by capitalisation of super profit and
also find out C’s share of goodwill.
ans: firm’s goodwill Rs 100,000, C’s goodwill Rs 33333
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10. A firm earned average profit of Rs 6,00,000 during the last few years.The normal rate of
return of the industry is 15%. The assets of the business were Rs.34,00,000 and its liabilities
were Rs. 4,00,000. Calculate the goodwill of the firm by capitalisation of average profit.

Ans: Rs.10,00,000

Work sheet : Change in profit sharing among existing Partners

1.Samiksha, Ash and Divya were partners in a firm sharing profits and losses in the ratio of 5
: 3 : 2. With effect from 1st April, 2019, they agreed to share future profits and losses in the
ratio of 2 : 5 : 3. Their Balance Sheet showed a debit balance of Rs.50,000 in the Profit and
Loss Account and a balance of Rs. 40,000 in the Investment Fluctuation Fund. For this
purpose, it was agreed that : (i) Goodwill of the firm be valued at Rs 3,00,000. (ii)
Investments of book value of Rs. 5,00,000 be valued at Rs. 4,80,000. Pass the necessary
journal entries to record the above transactions in the books of the firm.

2.. P Q and R are partners in a firm sharing profits aand losses in the ratio of 1:1:2. On 31 st
march 2020Their balance sheet showed a credit balance of Rs 9,000 in the profit and los
account and a workmen compensation fund of Rs 64,000. From 1st april 2020 they decided
to share profits in the ratio of 2:2;1. For this purpose it was agreed that : a) Goodwill of the
firm was valued at Rs.4,00,000.

b) A claim on account of workmen compensation of Rs. 30,000 was admitted. Pass

necessary journal entries on the reconstitution of the firm.

3. A , B and C are partners in a firm sharing profits aand losses in the ratio of 8:5:3. It is felt
that A will not be able to actively participate in the affairs of the firm. Hence with effect
from January 1st 2020 they decided that in future they will share the profits in the ratio of
5:6:5. Goodwill of the firm is valued at rs 1,60,000. Pass journal entry

a) if goodwill is adjusted through partners capital account

b) if goodwill is raised and write off

4. X, Y and Z are partners sharing profits and losses in the ratio of 5 : 3 : 2. They
decide to share future profits and losses in the ratio of 2 : 3 : 5 with effect from
1 st April 2019. Following items appear in the balance sheet as at 31 st March 2019.
General Reserve Rs 75000 profit and loss a/c (cr.) 37,500
Workmen compensation reserve rs 12000
advertisement suspense a/c Rs 50,000
Pass the necessary journal entries.
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5. Satish and Taruna were partners in a firm sharing profits and losses in the ratio of 3 : 2.
From 1st April, 2018 they decided to share profits equally. On that date, their Balance Sheet
showed a credit balance of ₹ 35,000 in workmen compensation fund and ₹ 40,000 in general
reserve. The goodwill of the firm on that date was valued at ₹ 50,000. The firm accepted a
claim of ₹ 40,000 for workmen compensation.
Pass necessary journal entries for the above transactions on the reconstitution of the firm.

P, Q and R were partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. On 31st
March, 2018 their Balance Sheet was as follows:

On the above date the firm was reconstituted and it was decided that:
(i) The new profit sharing ratio will be 2 : 2 : 1.
(ii) Bad debts ₹ 6,000 were to be written-off and a provision of ₹ 3,000 was to be made for
bad and doubtful debts.
(Hi) The capital of the partners will be adjusted in the new firms in their profit sharing ratio.
For this, partners’ current accounts will be opened.

Prepare revaluation a/c partners capital a/c and balance sheet

Ans ( current balance P Rs 114900, Q Rs.23400 , R Rs.138300

6.A, B, C and D were partners in a firm sharing profits in the ratio of 3 : 2 : 3 : 2. On 1st April,
2016 their balance sheet was as follows
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From the above date the partners decided to share the future profits in the ratio of 4 : 3 : 2 :
1. For this purpose the goodwill of the firm was valued at ₹ 2,70,000.
It was also considered that:
(i) Claim against workmen compensation reserve will be estimated at ₹ 30,000 and fixed
assets will be depreciated by 25,000.
(it) The capitals of the partners will be adjusted according to the new profit sharing ratio by
opening current accounts of the partners.
Prepare revaluation account, partners’ capital accounts and the balance sheet of the
reconstituted firm ( loss revaluation Rs 30,000, current balance A 228000, B 77000, C
72000, D 233000 capital a/c 392000, 294000, 196000, 98000 ) b/s 1405000

7. X,Y and Z share profits as 5 : 3 : 2. They decide to share their future profits as 4 : 3 : 3
with effect from April 1, 2019,. On this date the following revaluations have taken
placedr)

Book Value (Rs.) Revised Value (Rs.)

Investments 22,000 25,000

Plant and Machinery 25,000 20,000

Land and Building 40,000 50,000

Outstanding Expenses 5,600 6,000

Sundry Debtors 60,000 50,000

Trade Creditors 70,000 60,000

Pass necessary adjustment entry to be made because of the above changes in the
values of assets and liabilities. However old values will continue in the books.
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8.J, K and L are partners sharing profits and losses in 5:3:2. They decide to share
profits and losses in 2: 3:5 with effect from 1 st april 2023. They also decide to record
the effect of the following without affecting their book values.
Greneral reserve Rs 1,50,000, Investment fluctuation reserve Rs 25,000, Workmen
compensation reserve Rs 50,000, Profit and loss a/c (cr.) 75,000, Advertisement
suspense a/c (dr) Rs 1,00,000
Pass an adjustment entry .