Commerce Accountancy · Quantitative Aptitude

Partnership Accounting

181 Questions

Partnership accounting involves calculating profit and loss sharing ratios among business partners. It covers topics like interest on capital, joint life policies, and capital balances. These questions are a staple in commerce exams and test core accountancy principles.

Profit sharing ratiosInterest on capitalJoint venture accountingCapital balance calculationsPartner retirement policies

Partnership Accounting Questions

Multiple choice book keeping and accountancy accounting for partnership preparation of profit and loss appropriation account profit and loss appropriation account profit and loss appropriation account and distribution of profits among partners

C, D and E are partners sharing profits and losses in the proportion of 3 :2 :1. D retired and the new profit sharing ratio between C and E is 3 :2 and the Reserve of Rs. 24,000 will be divided among the partners.

  1. 4,000, 8,000 12,0000

  2. 10,000, 10,000 4,000

  3. 8,000 12,000 4,000

  4. 12,000 8,000 4,000
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Reserves are distributed in the old profit sharing ratio (3:2:1). Total reserve = 24,000. C: 24,000 * 3/6 = 12,000; D: 24,000 * 2/6 = 8,000; E: 24,000 * 1/6 = 4,000.

Multiple choice book keeping and accountancy accounting for partnership preparation of profit and loss appropriation account profit and loss appropriation account profit and loss appropriation account and distribution of profits among partners

P and Q are two partners sharing profit and loss equally. P draws Rs. 2,000 at the end of each month for 6 months whereas Q draws Rs. 1,000 at the beginning of each month for six months. Assuming that interest on drawing is to be charged at 6% p.a. Interest on drawing of Q will be.

  1. Rs.105

  2. Rs.100

  3. Rs.110

  4. Rs.101
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Q draws 1,000 at the beginning of each month for 6 months. Total drawings = 6,000. Average period = (6 + 1) / 2 = 3.5 months. Interest = 6,000 * 6% * 3.5 / 12 = 105.

Multiple choice book keeping and accountancy accounting for partnership preparation of profit and loss appropriation account profit and loss appropriation account profit and loss appropriation account and distribution of profits among partners

P and Q are two partners sharing profit and loss equally. P draws Rs. 2000 at the end of each month for 6 months whereas Q draws Rs. 1,000 at the beginning of each month for six months. Assuming that interest on drawing is to be charged at 6% p.a. Interest on drawing of P will be __________.

  1. Rs. 150

  2. Rs. 80

  3. Rs. 86

  4. Rs. 90
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

P draws 2,000 at the end of each month for 6 months. Total drawings = 12,000. Average period = (5 + 0) / 2 = 2.5 months. Interest = 12,000 * 6% * 2.5 / 12 = 150.

Multiple choice book keeping and accountancy accounting for partnership preparation of profit and loss appropriation account profit and loss appropriation account profit and loss appropriation account and distribution of profits among partners

Bill and Monica are partners sharing profits and losses in the ratio of $3:2$ having the capital of Rs. $80,000$ and Rs. $50,000$ respectively. They are entitled to $9\%$ p.a. interest on capital before distributing the profits. During the year firm earned Rs. $7,800$ before allowing any interest on capital. Profits apportioned among Bill and Monica is?

  1. $4,680$ and $3,120$
  2. $4,800$ and $3,000$
  3. $5,000$ and $2,800$

  4. None of these
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Total interest on capital = 9% of (80,000 + 50,000) = 11,700. Profit available = 7,800. Since profit is insufficient, interest is paid in the capital ratio (8:5). Bill: 7,800 * 8/13 = 4,800; Monica: 7,800 * 5/13 = 3,000.

Multiple choice book keeping and accountancy accounting for partnership preparation of profit and loss appropriation account profit and loss appropriation account profit and loss appropriation account and distribution of profits among partners

X and Y are partners sharing profit and loss at the ratio of 1/3 and 2/3 respectively. The net income for this accounting period is Rs 10,000 while salary of X = Rs 2,000, interest on Y's drawings = Rs 3,000 and interest on X's capital = Rs 2,000. What is the X's share of profit or loss after the adjustment for partner's salary, interest on capital and interest on drawings?

  1. 3,000

  2. 6,000

  3. 9,000

  4. 2,000
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation


X and Y share profit & loss in a 1:2 ratio. Salary of X is Rs2,000 along with interest on his capital of Rs2,000. Y has to pay interest on drawings of Rs3,000 and firm earned Rs10,000 ass profits.

                                     Profit & Loss Appropriation a/c

 Particulars (Dr.)  Amount  Particulars (Cr.)  Amount
To Interest on capital a/c (X)To salary a/c (X)To profit on appropriationX's capital a/c      3,000Y's capital a/c      6,000  2,0002,0009,000  By p/l a/cBy interest on drawings a/c (Y) 10,0003,000

Thus, X's share of profit after all appropriations is $Rs3,000$


Multiple choice book keeping and accountancy accounting for partnership preparation of profit and loss appropriation account profit and loss appropriation account profit and loss appropriation account and distribution of profits among partners

X, Y and Z are sharing profits & losses in the ratio of 5:3:2. They decide to share future profits & losses in the ratio of 2:3:5 with effect from 1st April. They also decide to record the effect of following revaluations without affecting the book values of the assets & liabilities, by passing a single adjusting entry:

Book Figure Revalued Figure
Land & Building Rs 60,000 Rs 90,000
Plant & Machinery Rs 90,000 Rs 84,000
Trade Creditors Rs 30,000 Rs 27,000
Outstanding Expenses Rs 27,000 Rs 36,000

The necessary single adjusting entry will involve:

  1. Debit Z and Credit X with Rs 5,400

  2. Debit X and Credit Z with Rs 5,400

  3. Debit Y and Credit X with Rs 5,400

  4. Debit X and Credit Y with Rs 5,400
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

In this question,revaluation account has to be prepared to calculate any profit or loss due to revaluation of assets or liabilities.

A revaluation account is prepared on the basis that reduction in assets or increased liability are debited but reduced liability or increased assets are credited.
Revaluation profit or loss$=Rs30,000(credited)-Rs6,000(debited)+Rs3000(credited)-Rs9000(debited)\quad =Rs18,000$
The next step is to calculate sacrifising ratio of X, Y and Z
X's sacrifising ratio$=\frac { 5 }{ 10 } -\frac { 2 }{ 10 } \quad =\frac { 3 }{ 10 } $
Y's sacrifising ratio$=\frac { 3 }{ 10 } -\frac { 3 }{ 10 } \quad =\frac { 0 }{ 10 } $
Z's sacrifising ratio$=\frac { 2 }{ 10 } -\frac { 5 }{ 10 } \quad =\frac { -3 }{ 10 } $
It is clear from above that X has sacrifised whereas Z has gained and Y is out of it.
X's sacrificed amount$=\frac { 3 }{ 10 } \times Rs18,000\quad =Rs5,400$
Z's gained amount$=\frac { 3 }{ 10 } \times Rs18,000\quad =Rs5,400$
Since, journal entry for chnage in ratio is 
$Gain\ \quad To\quad Sacrifise$
Hence, X is credited with $Rs5,400$ and Z has to be debited with $Rs5,400$

Multiple choice book keeping and accountancy accounting for partnership preparation of profit and loss appropriation account profit and loss appropriation account profit and loss appropriation account and distribution of profits among partners

X, Y and Z are partners sharing profits & losses in the ratio of 5:3:2. From 1st April they decide to share profits and losses in the ratio of 2:5:3. The Partnership deed provides that in the event of any change in profit sharing ratio, the goodwill should be valued at two years' purchase of the average profits of the preceding 5 years. The profits and losses of the preceding years are:
i. Profit Rs 39,000,
ii. Profit Rs 57,000,
iii. Profit Rs 24,000,
iv. Profit Rs 27,000,
v. Loss Rs 12,000.
The necessary single adjusting entry will involve:

  1. Debit Y by Rs 10,800 and Z by Rs 5,400 and Credit X by Rs 16,200.

  2. Debit Z by Rs 10,800 and Y by Rs 5,400 and Credit X by Rs 16,200.

  3. Debit X by Rs 10,800 and Z by Rs 5,400 and Credit Y by Rs 16,200.

  4. Debit Z by Rs 10,800 and X by Rs 5,400 and Credit Y by Rs 16,200.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Goodwill for two-year purchase of average profit can be calculated using the formula given below:

$Goodwill=\quad Average\quad profit\times No.\quad of\quad purchase\quad year$
Substitute values in the above equation
$Goodwill=\quad \frac { Rs39,000+Rs57,000+Rs24,000+Rs27,000-Rs12,000 }{ 5 } \times 2years\quad =\frac { Rs1,35,000 }{ 5 } \times 2\quad =Rs54,000$
Now, sacrifising ratio of X, Y and Z has to be calculated using the formula given below
$Sacrifising\quad ratio=\quad Old\quad ratio-New\quad ratio$
X's sacrifising ratio$=\quad \frac { 5 }{ 10 } -\frac { 2 }{ 10 } \quad =\frac { 3 }{ 10 } $
Y's sacrifising ratio$=\quad \frac { 3 }{ 10 } -\frac { 5 }{ 10 } \quad =\frac { -2 }{ 10 } $
Z's sacrifising ratio$=\quad \frac { 2 }{ 10 } -\frac { 3 }{ 10 } \quad =\frac { -1 }{ 10 } $
As we see that Y and Z are gaining due to change in ratios but X has sacrifised
Y's gain$=Rs54,000\times \frac { 2 }{ 10 } \quad =Rs10,800$
Z's gain$=Rs54,000\times \frac { 1 }{ 10 } \quad =Rs5,400$
X's sacrifise$=Rs54,000\times \frac { 3 }{ 10 } \quad =Rs16,200$
Journal entry for adjustement 
$Gain\ \quad To\quad Sacrifise$
Substitute values in above equation
$Y's\quad capital\quad a/c\quad Dr\quad Rs10,800\ Z's\quad capital\quad a/c\quad Dr\quad Rs5,400\ \quad \quad To\quad X's\quad capital\quad a/c\quad Rs16,200$
Hence, Y is debited with $Rs10,800$ along with Z as $Rs5,400$ but X is credited with $Rs16,200$

Multiple choice book keeping and accountancy accounting for partnership preparation of profit and loss appropriation account profit and loss appropriation account profit and loss appropriation account and distribution of profits among partners

A and B are Partners sharing profits in the ratio of 3:2 with capitals of Rs. 50,000 and Rs. 30,000 respectively. Interest on capital is agreed @ 6% p.a. B is to be allowed an annual salary of Rs. 2,500. During 2016, the profits of the year prior to calculation of interest on capital but after charging B's salary amounted to Rs. 12,500. Calculate the amount of profits to be distributed to A and B after the above effect.

  1. A's Profit Rs. 4,389; B's Profit Rs. 2,926

  2. A's Profit Rs. 4,620; B's Profit Rs. 3,080

  3. A's Profit Rs. 4,000; B's Profit Rs. 3,000

  4. A's Profit Rs. 4,300; B's Profit Rs. 2,900
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation


A and B share profits in ratio 3:2

                              Profit & Loss Appropriation A/c

 Particulars (Dr.)  Amount  Particulars (Cr.) Amount 
 To interest on capitalA's capital       3,000B's capital       1,800To salary a/c (B)To profit on appropriationA's capital         4,620B's capital         3,080 4,8002,5007,700  By P&l a/c    12,500 + B's salary  2,500  15,000

Hence, A's share of proit is $Rs4,620$ whereas B's share is $Rs3,080$

Multiple choice book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

A and B were partners in a joint venture sharing profits and losses in the proportion of 4/5th and 1/5th respectively. A supplies goods to the value of  50,000 and incurs expenses amounting to 5,400. B supplies goods to the value of 14,000 and his expenses amount to 800, B sells goods at 87,400. B settles his account by bank draft. What will be the profit on venture?

  1. 17,200

  2. 17,000

  3. 18,000

  4. 18,200
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

                                       Joint Venture Account

 Particulars  Amount  Particulars  Amount
 To A's A/cGoods: 50000Expenses: 5400  55400  By B's A/c (sales)  87400
 To B's A/cGoods: 14000Expenses: 800  14800    
 To Profit A- 13760B- 3440  17200    
 Total  87400 Total   87400

                                                

Multiple choice book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

A partner gave a loan of Rs.20,000 to the firm. At the time of dissolution of the firm the net losses of the firm were 30,000. How much money will the partner get on dissolution?

  1. Nil

  2. 20,000

  3. 20,000 + 6% interest

  4. None of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

In case of loss, two situations arise:
1. If partner's capital has a credit balance then his loan amount will be repaid. Following entry will be passed: 
Partner's loan A/c Dr.
   To Bank/Cash A/c
2. If a partner's capital has debit balance then loan amount will not be paid. loan amount is transferred to capital account of partner. Following entry will be passed:
Partner's loan A/c Dr. 
   To Partner's Capital A/c

Multiple choice book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

X, Y, Z are partners sharing profits and losses equally. They took a joint life policy of Rs 5,00,000 with a surrender value of Rs 3,00,000. The firm treats the insurance premium as an expense. Y retired and X and Z decided to share profits and losses in 2:1. The amount of Joint life policy will be transferred as:

  1. Credited to X, Y and Z's Capital accounts with Rs 1,00,000 each.

  2. Credited to X, Y and Z's capital accounts with Rs 166,667 each

  3. Credited to X, and Z capital accounts with Rs 2,50,000 each

  4. Credited to Ys capital account with Rs 3,00,000 each
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

When the premium is treated as an expense, the surrender value of the policy is distributed among all partners in their old profit-sharing ratio upon the retirement of a partner.

Multiple choice book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

A, B, & C were partners sharing profits and losses in the ratio of 3:2:1 A Retired and firm received the joint life policy as 7,500 appearing in the balance sheet at 10,000 JLP is credited and cash debited 7,500 what will be the treatment for the balance in Joint Life Policy?

  1. Credited to partner's current account in profit sharing ratio.

  2. Debited to revaluation account.

  3. Debited to partner's capital account in profit sharing ratio.

  4. Either (B) or (C)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

When the JLP amount received exceeds the book value, the difference is a gain. This gain is credited to the partners' capital accounts in the old profit-sharing ratio, or adjusted via the revaluation account.

Multiple choice book keeping and accountancy dissolution of firm accounting record at the time of dissolution procedure of settlement of accounts partnership account (dissolution of partnership)

A, B & C takes a joint life policy, after 5 years B retire from the firm. Old profit sharing ratio is 2:2:1. After retirement A and C decided to share profits equally. They had taken a joint life policy of 2,50,000 with the surrender value 50,000 What will be the treatment in the partner's capital account on receiving the JLP amount if joint life policy is maintained at the surrender value along with the reserve?

  1. 50,000 credited to all the partners in old ratio.

  2. 2,50,000 credited to all the partners in old ratio

  3. 2,00,000 credited to all the partners in old ratio.

  4. Distribute JLP Reserve A/c in old profit sharing ratio.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

If the JLP is maintained at surrender value with a corresponding reserve, the reserve is distributed among all partners in the old profit-sharing ratio upon retirement.

Multiple choice book keeping and accountancy accounting for retirement and death of partner reconstitution of partnership (retirement of partner) accounting of sum payable to a partner on retirement or death accounting treatment in case of retirement of a partner

R, J & D are the partners sharing profits in the ratio $7 : 5 : 5$. D died on $30$th June $2015$. Profit for the accounting year $2014-2015$ was $Rs.24,000$. How much share in profits for the period $1st$ April, $2015$ to $30$th June, $2015$ will be credited to D's A/c?

  1. $Rs.6,000$
  2. $Rs.1,500$
  3. $Rs.4,500$
  4. $Rs.2,000$
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Profit of the accounting year 2014 - 2015 = Rs. 24000

Profit till 30th june = Rs.24000 * (3/12) = 6000
Distribution of profit among partners on the date of the death of D
R = 6000 * (7/16) = 2625
J = 6000 * (5/16) = 1875
D = 6000 * (4/16) = 1500