Tag: interest on partner's drawings and capital

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Questions Related to interest on partner's drawings and capital

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

Interest on drawing is ________ for the business.

  1. expenses

  2. gain

  3. neither expenses nor gain

  4. expense or gain depending on the situation
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

When a partner withdraws cash from the firm for domestic use, the withdrawal of cash is termed as drawings. If the partnership deed has a provision of charging interest on drawings, the firm may charge interest on drawings from partners. Interest on drawing is a gain for the firm. It is calculated at the agreed rate. The amount of interest on drawings will be credited to Profit and Loss Appropriation Account and will be debited to partner’s capital account/current account (Individually).

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

The interest on partner's capital accounts is to be credited to_________. 

  1. partner's capital Accounts

  2. profits and loss Accounts

  3. interest account

  4. all of these
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Interest on capital is an appropriation of profit paid to partners. It is credited to the partner's capital account (or current account) to increase their equity in the firm.

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

Where a partner is entitled to interest on capital contributed by him, such interest will be payable: 

  1. Only out of profits

  2. Only out of capital

  3. Either (a) or (b)

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

Interest on capital is generally treated as an appropriation of profits, meaning it is only payable if the firm earns a profit. It is not a charge against profits unless specifically agreed upon in the partnership deed.

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

N & Z are two partners. During the year N withdraws Rs. $37,000$ on $1-5-2012$ & Z withdraws Rs. $45,000$ on $15-8-2012$. Accounts are closed on $31-12-2012$. Rate of interest on drawings is $10\%$ p.a. Interest on drawing for two partner respectively will be.

  1. $2,775$ & $2,063$

  2. $2,063$ & $2,775$

  3. $2,467$ & $1,688$

  4. $1,688$ & $2,467$
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Calculation of interest in drawings:
$N=37,000\times 10\%\times \dfrac{8}{12}=2,467$
$S=45,000\times 10\%\times \dfrac{4.5}{12}=1,688$.

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

If a fixed amount is withdrawn on the last day of every month of a calendar year, the interest on the total amount of drawings will be calculated for _________. 

  1. 4.5 months

  2. 5.5 months

  3. 6 months

  4. 6.5 months
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation
If a fixed amount is withdrawn on last day of every month of the calendar year, the interest on the total amount of drawings will be calculated for 5.5 months. Average period will be calculated as:-
= Months left after first drawing + months left after last drawing 
 ------------------------------------------------------------------------------------------
                                                        2
= 11 + 0
-------------
        2
= 5.5 months.
Multiple choice book keeping and accountancy adjustments drawing account of partners interest on drawings interest on partner's drawings and capital

If a fixed amount is withdrawn on the middle day of every month of a calendar year, the interest on the total amount of drawings will be calculated for ________. 

  1. 4.5 months

  2. 5.5 months

  3. 6 months

  4. 6.5 months
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation
If a fixed amount is withdrawn on the middle day of every month of the calendar year, the interest on the total amount of drawings will be calculated for 6 months. Average period will be calculated as:-
= Months left after first drawing + months left after last drawing 
 ------------------------------------------------------------------------------------------
                                                       2
= 11.5 + 0.5
------------------
         2
= 6months
Multiple choice book keeping and accountancy adjustments drawing account of partners interest on drawings interest on partner's drawings and capital

If a fixed amount is withdrawn on the first day of every quarter of a calendar year, the interest on total amount of drawings will be calculated for _______. 

  1. 4.5 months

  2. 5.5 months

  3. 6 months

  4. 7.5 months
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation
If a fixed amount is withdrawn on first day of every quarter of the calendar year, the interest on the total amount of drawings will be calculated for 6.5 months. Average period will be calculated as:-
= Months left after first drawing + months left after last drawing 
 ------------------------------------------------------------------------------------------
                                                        2
= 12 + 3 
------------
       2
= 7.5 months

Explanation:- 
Suppose if the first drawing is made on 1st January then 12 months will be left and in the last quarter October to December last drawing will be made on 1st October and 3 months will be left. 
Multiple choice book keeping and accountancy adjustments drawing account of partners interest on drawings interest on partner's drawings and capital

What time would be taken into consideration if equal monthly amount is drawn as drawing at the beginning of each month? 

  1. 7 months

  2. 6 months

  3. 5 months

  4. 6.5 months
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation
If a fixed amount is withdrawn in the beginning of every month of the calendar year, the interest on the total amount of drawings will be calculated for 6.5 months.
Average period will be calculated as:-
= Months left after first drawing + months left after last drawing 
 ------------------------------------------------------------------------------------------
                                                        2
= 12 + 1 
-----------
      2
= 6.5 months
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 drawings only when ______ by the _________. 

  1. Provided, agreement

  2. Permitted, Investors

  3. Agreed, partners

  4. A & C above 
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation
Partners are supposed to pay interest on drawings only when they are provided by the agreement and are agreed by the partners. 
Multiple choice book keeping and accountancy adjustments drawing account of partners interest on drawings interest on partner's drawings and capital

If a fixed amount is withdrawn on the middle day of every quarter of a calendar year, the interest on total amount of drawings will be calculated for ________. 

  1. 4.5 months

  2. 5.5 months

  3. 6 months

  4. 6.5 months
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation
If a fixed amount is withdrawn on middle day of every quarter of the calendar year, the interest on the total amount of drawings will be calculated for 6 months. Average period will be calculated as:-
= Months left after first drawing + months left after last drawing 
 ------------------------------------------------------------------------------------------
                                                        2
= 10.5 + 1.5
------------
       2
= 6 months

Explanation:- 
Suppose if the first drawing is made on ( 1st quarter January to March) 15th February then 10.5 months will be left and in the last quarter October to December last drawing will be made on 15th November and 1.5 months will be left.