Tag: adjustment of distributable profits

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Multiple choice book keeping and accountancy partnership accounts (preliminary) adjustment of distributable profits final accounts of partnership firms profit-loss appropriation account

When the Interest on capital is allowed to partners, Interest on Capital Account is debited and Partner's Capital Account is credited. It is called _____________. 

  1. an opening entry

  2. a closing entry

  3. an adjusting entry

  4. an transfer entry
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

When the interest on capital is allowed to partners, interest on capital Account is debited and partner's capital Account is credited. It is called as an adjusting entry. Adjusting entries are usually done at the end of the year for incomes and expenses. 

Multiple choice book keeping and accountancy partnership accounts (preliminary) adjustment of distributable profits final accounts of partnership firms profit-loss appropriation account

A and B are partners A's capital is Rs. 10,000 and B's capital is Rs. 6,000. Interest on capital is payable @ 6% p.a. B is entitled to a salary of Rs. 300 per month. Profit to the year before interest and salary to B is Rs. 8,000. Profits between A and B will be divided:

  1. Rs. 1,720 to A and Rs.1,720 to B

  2. Rs. 2000 to A and Rs.1440 to B

  3. Rs. 1440 to A and Rs.2000 to B

  4. None
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation
Profit after interest and remuneration :-
= Profit before interest and remuneration - Interest - remuneration
= Rs-8,000 - (600 + 360) - (3,600)
= Rs-3,440.

Distributing profit is equal ratio among partners = Rs-3,440 / 2
                                                                                = Rs-1,720 to each partner. 
Working notes:-
Interest on capital = Capital x rate of interest 
A:-
= 10,000 x 6/100
= Rs-600
B:-
= 6,000 x 6/100
= Rs-360. 
B's remuneration = Rs-300 x 12
                             = Rs-3,600

Multiple choice book keeping and accountancy partnership accounts (preliminary) adjustment of distributable profits final accounts of partnership firms profit-loss appropriation account

X and Y are partners with the capital of Rs. 50,000 and Rs. 30,000 respectively. Interest payable on capital is 10% p.a. Find the interest on capital for both the partners when the profits earned by the firm is Rs. 4,800?

  1. Rs. 5,000 and Rs. 3,000. 

  2. Rs. 3,000 and Rs. 1,800. 

  3. No interest will be paid to the partners.

  4. None of the above. 
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation
Interest on capital = capital x rate
X :-
= 50,000 x 10/100
= RS-5,000. 
Y:-
= 30,000 x 10/100
= RS-3,000.

Apportioned in the ratio of interest to be allowed to the extent of profits available:-
X:-
= 5,000
-------------- x 4,800
 8,000
= RS-3,000.
Y:-
= 3,000 
------------- x 4,800
  8,000
= RS-1,800.
Multiple choice book keeping and accountancy partnership accounts (preliminary) adjustment of distributable profits final accounts of partnership firms profit-loss appropriation account

M and N are partners in a firm. M has given a loan of Rs. 8,000 to the firm on 1st July, 2017. The partnership deed is silent upon the question of provision of interest on partner's loan. Compute the amount of interest payable on the loan advanced by M to the firm, assuming the books are closed on 31st March each year.

  1. Rs. 460

  2. Rs. 360

  3. Rs. 560

  4. Rs. 480
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Amount of loan given by M to the firm (on 1st July, 2017) = Rs. 8,000
Period (from 1st July, 2017 to 31st March, 2018) = 9 months
Interest rate = 6% p.a.
Interest on M's loan = 8,000 x 6/100 x 9/12 = 360

Multiple choice book keeping and accountancy partnership accounts (preliminary) adjustment of distributable profits final accounts of partnership firms profit-loss appropriation account

A and B are partners having capital of Rs. 5,000 and Rs. 6,000 respectively. Interest on capital is given @ 5% p. a. Profits for the year before the appropriation is Rs. 4.600 provide interest on capital out of profits. Interest allocated to partners is:

  1. Rs. 3,000 and Rs. 2,500

  2. Rs. 2,090 and Rs. 2,509

  3. Rs. 2,500 and Rs. 2,091

  4. Rs. 600 and Rs. 300
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation
Interest on capital = capital x rate
A :-
= 50,000 x 5/100
= RS-2,500.
B:-
= 60,000 x 5/100
= RS-3,000.

Apportioned in the ratio of interest to be allowed to the extent of profits available:-
A:-
= 2,500
-------------- x 4,600
   5,500
= RS-2,090.
B:-
= 3,000 
------------- x 4,600
  5,500
= RS-2,509.