Accounts -1999 -Set II

Q1) List any two items appearing on the credit side of a partner’s current account. (Marks 2)
Ans1) (i) Interest on partner’s capital.
(ii) Partner’s share of profit.

Q2) On April 1st, 1998 an existing firm had assets of Rs. 75,000/- including cash of Rs. 5,000/-. The partner’s capital account showed a balance of Rs. 60,000/- and reserve constituted the rest. If the normal rate of return is 20% and the goodwill of the firm is valued at Rs. 24,000/- at 4 year purchase of super profits, find the average profits of the firm. (Marks 3)
Ans2) Goodwill = super profits x 4 year purchase
24000 = super profits x 4
super profits = 6000
Normal profits = Capital employed x Normal rate of return
= 75000 x 20/100
= 15000
(…Capital employed = Assets of the firm = 75000)
…Average profit = Normal profit + Super profit
= 15000 + 6000
Average profit = Rs. 21000

Q4) (a) A and B are partners in a firm sharing profits equally. They had advanced to the firm a sum of Rs. 30,000/- as a loan in their profit sharing ratio on July 1st, 1998. The partnership deed is silent on the question of interest on loan from partners. Compute the interest payable by the firm to the partners, assuming the firm closes its books on December 31st. (Marks 3)

(b) A, B and C are partners sharing profits in the ratio of 5 : 4 : 1. C is given a guarantee that his share of profits in any given year would be Rs. 5000/-. Deficiency, if any, would be borne by A and B equally. The profits for the year 1998 amounted to Rs. 40000/-. Pass necessary entries in the books of the firm. (Marks 3)
Ans4) (a) According to the provisions of the Indian Partnership Act, 1932, interest @ 6% p.a. is payable to the partners on the loan advanced by them to the firm.
Total loan = 30000
A’s share of loan = 30000 x 1/2 = 15000
B’s share of loan = 15000
… Interest on A’s loan = 15000 x 6/100 x 6/12 = 450
Interest on B’s loan = 15000 x 6/100 x 6/12 = 450
… Total Interest payable by firm =
450 + 450 = Rs. 900

(b) Working Notes :
C’s share in profit = 1/10 x 40000 = 40000
C’s guarantee = 5000
C’s deficiency = 5000 – 4000 = 1000
The deficiency is to be borne equally by A and B.
A’s share of profit = 5/10 x 40000 = 20000
Less : C’s guarantee 500
A’ profit = 19500
B’s share of profit = 4/10 x 40000 = 16000
Less: C’s guarantee 500
B’s profit = 15500

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