Tag: interest on partner's drawings and capital

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Multiple choice book keeping and accountancy adjustments drawing account of partners interest on drawings interest on partner's drawings and capital

Which of the following statements is true ?

  1. When separate set of books is maintained, expenses paid by venturer will be credited to joint bank account.

  2. When separate set of books is maintained, expenses paid by venturer will be credited to venturer's capital account.

  3. When separate set of books is maintained, expenses paid by venturer will be credited to Jt. Venture account.

  4. When separate set of book is maintained, expenses paid by venturer will be credited to Outstanding Expenses Account.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

When a separate set of books is maintained for a joint venture, any expenses paid by a venturer are treated as a liability to that venturer, thus being credited to their respective personal capital account.

Multiple choice book keeping and accountancy adjustments drawing account of partners interest on drawings interest on partner's drawings and capital

A and B entered into a joint venture contract. They opened a joint bank account by contributing Rs. 1,00,000 each. The expenses incurred on contract were Rs. 1,00,000. Contract money received by cheque was Rs. 2,00.000 and in shares Rs. 50,000. The shares are sold for Rs. 40,000. What will be the profit on venture ?

  1. Rs. 1,50,000

  2. Rs. 1,40,000

  3. Rs. 2,40,000

  4. Rs. 2,00,000
Reveal answer Fill a bubble to check yourself
B Correct answer
Multiple choice book keeping and accountancy adjustments drawing account of partners interest on drawings interest on partner's drawings and capital

How would you close the Partner's Drawing Account?

  1. By transfer to the debit of Capital or Current Account

  2. By transfer to the credit of Capital Account

  3. By transfer to the credit of Current Account

  4. Either b or c
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

A partner's drawing account represents withdrawals made by the partner. At the end of the accounting period, this balance is transferred to the debit side of the partner's capital or current account to close it.

Multiple choice book keeping and accountancy adjustments drawing account of partners interest on drawings interest on partner's drawings and capital

A Ltd. has allotted $20,000$ shares to the applicants of $28,000$ shares on pro-rata basis. The amount payable on application is $Rs. 2$. M applied for $420$ shares. The number of shares allotted and the amount carried forward for adjustment against allotment money due from Mr. X will be ______________.

  1. $60$ shares; $Rs. 120$

  2. $340$ shares; $Rs. 160$

  3. $300$ shares; $Rs. 200$

  4. $300$ shares; $Rs. 240$
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Ratio of allotment = 20,000/28,000 = 5/7. For 420 shares applied, allotment = 420 * (5/7) = 300 shares. Excess application money = (420 - 300) * 2 = 120 * 2 = 240. This excess is adjusted against allotment.

Multiple choice book keeping and accountancy adjustments drawing account of partners interest on drawings interest on partner's drawings and capital

Partners are supposed to pay interest on drawing only when provided by the ______________.

  1. Partnership Act

  2. None of these

  3. Agreement

  4. Both a and c
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Interest on Drawings: No interest is to be charged on the drawings made by the partners, if there is no mention in the Agreement and  If a partner carries on any business of the same nature as and competing with that of the firm, he/she shall account for and pay to the firm, all profit made by him/her in that business.

Multiple choice book keeping and accountancy adjustments drawing account of partners interest on drawings interest on partner's drawings and capital

Interest on Drawings is:

  1. Debited to P/L A/C

  2. Credited to P/L A/C

  3. Debited to capital A/C

  4. None
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Interest on Drawings will be debited to capital account. Interest on drawing is an income for the firm and is payable by the partners to the firm hence, is deducted/debited. Interest is charge on the money/goods taken by the partners for their personal use during the year. 

Multiple choice book keeping and accountancy adjustments drawing account of partners interest on drawings interest on partner's drawings and capital

John, a partner in Modern Tours and Travels withdrew money during the year ending March 31, 2016 from his capital account, for his personal use. Calculate interest on drawings, if rate of interest is 9 per cent per annum.  If an amount of Rs. $3,000$ per month was withdrawn by him at the end of each month.

  1. Rs. $1,580$

  2. Rs. $2,355$

  3. Rs. $1,955$

  4. Rs. $1,485$
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Using the average method:

Interest on Drawings = (3,000 x 12) x 9/100 x [(longest outstanding period + shortest outstanding period)/2]/12
= (3,000 x 12) x 9/100 x [(11 + 0)/2]/12
= (3,000 x 12) x 9/100 x (5.5/12)
= 1,485

Multiple choice book keeping and accountancy adjustments drawing account of partners interest on drawings interest on partner's drawings and capital

John, a partner in Modern Tours and Travels withdrew money during the year ending March 31, 2016 from his capital account, for his personal use. Calculate interest in drawings if rate of interest is $9$ per cent per annum and If he withdrew Rs. $3,000$ per month at the beginning of the month.

  1. Rs. $1,485$

  2. Rs. $2,845$

  3. Rs. $1,755$

  4. Rs. $1,580$
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Using the average method:

Interest on drawings = (3,000 x 12) x 9/100 x [(longest outstanding period+shortest outstanding period)/2]/12
=(3,000 x 12) x 9/100 x [(12+1)/2]/12
=36,000 x 9/100 x 6.5/12
=1,755

Multiple choice book keeping and accountancy adjustments drawing account of partners interest on drawings interest on partner's drawings and capital

Interest on drawings is _________.

  1. Expenditure for the business

  2. Expense for the business

  3. Gain for the business

  4. Loss for the business
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Business entity concept defines that firm and its owners are having separate legal entity. 

Hence, capital is shown as liability and interest charged on capital is considered as expenses. 
Opposite to this, interest charged on drawing is to be debited to capital account and its a gain for the business.

Multiple choice book keeping and accountancy adjustments drawing account of partners interest on drawings interest on partner's drawings and capital

A and B enter into a joint venture sharing profit and losses in the ratio 2:3. Goods were purchased by A for Rs. 55,000. Expenses incurred by A Rs. 3,500 and by B Rs. 5.200. B sold the goods for Rs. 80,000. Remaining stock was taken over by B at Rs. 12,200. What will be the final remittance to be made by B to A?

  1. Rs. 69,900

  2. Rs. 92 200

  3. Rs. 28,500

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

Total cost incurred by A is 55,000 + 3,500 = 58,500. Total cost incurred by B is 5,200. Total cost of the venture is 63,700. Total revenue is 80,000 (sales) + 12,200 (stock) = 92,200. Profit is 92,200 - 63,700 = 28,500. A's share (2/5) is 11,400 and B's share (3/5) is 17,100. A should receive 58,500 + 11,400 = 69,900 from B.