Fundamentals of Partnership: ISC Class 12 Accounts Notes and Solved Problems

What Fundamentals of Partnership is about

Weightage: Fundamentals of Partnership is part of the syllabus unit that carries 11 of the 80 theory marks. It is in the compulsory Section A (60 marks).Source: CISCE ISC Accountancy (Accounts) syllabus, examination year 2027, distribution of marks

Key concepts

Meaning and features of partnership

Section 4 of the Indian Partnership Act, 1932 defines partnership as the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. The persons are individually partners and collectively a firm.

Features that follow from the definition:

• Two or more persons: the maximum is fixed by the Companies (Miscellaneous) Rules at 50.
• Agreement: oral or written; the written form is the partnership deed. Partnership arises from agreement, not from birth or status.
• Lawful business: there must be a business. Co-owners who share rent from a building are not partners.
• Sharing of profit: the purpose is to share profit (and, unless agreed otherwise, loss).
• Mutual agency: each partner is both a principal and an agent; the act of one in the ordinary course of business binds all. This is the real test of partnership.
• Unlimited liability: partners are jointly and severally liable for the firm's debts, so private assets can be used.
• No separate legal entity: the firm and the partners are not separate in law, although the accounts treat the firm as a separate unit.

Worked example

Suppose Rhea lends ₹2,00,000 to her friend Kabir's café on the condition that she receives 15% of each year's profit. She has no say in running the café and cannot sign for it. Is Rhea a partner? Give reasons. [2 marks]

Try it first, then show the solutionSolution

1. Sharing of profit is evidence of partnership but not proof of it.
2. The test is mutual agency: whether the business is carried on by all or any of them acting for all. Rhea cannot act for the café and Kabir does not act for her.
3. The arrangement is a loan with a return linked to profit.

Answer: No. There is no mutual agency, so Rhea is a lender, not a partner, even though her return depends on profit.

Partnership deed and the rules when the deed is silent

The partnership deed is the written agreement. It normally covers the name and business of the firm, names of partners, capital of each partner, profit sharing ratio, interest on capital, drawings and loans, salaries and commission to partners, method of keeping capital accounts, accounting period, and rules for admission, retirement, death, dissolution and disputes.

When the deed says nothing on a point (or there is no deed), the Indian Partnership Act, 1932 applies:

• Profits and losses are shared equally.
• No interest on capital.
• No interest on drawings.
• No salary or commission to any partner for taking part in the business.
• Interest at 6% p.a. on a partner's loan (advance) to the firm, over and above capital, payable even if there is a loss.

The Act also makes each partner account to the firm for any private profit made from firm business and for profits of a competing business.

Worked example

Suppose Ivan and Tara have no deed. Ivan contributed ₹5,00,000 capital and Tara ₹2,00,000. Tara also gave a loan of ₹1,00,000 to the firm on 1st April 2025. Ivan claims interest on capital at 10% p.a. and Tara claims interest on her loan at 12% p.a. Profit for 2025-26 before any of these is ₹96,000. Settle the claims. [3 marks]

Try it first, then show the solutionSolution

1. No deed, so no interest on capital: Ivan's claim is rejected.
2. Interest on Tara's loan is allowed at 6% p.a., not 12%: ₹1,00,000 × 6/100 = ₹6,000. It is a charge, credited to Tara's Loan A/c.
3. Profit to be shared = ₹96,000 − ₹6,000 = ₹90,000, shared equally (not in the capital ratio): ₹45,000 each.

Answer: Tara gets ₹6,000 interest on loan; Ivan gets no interest on capital; the remaining ₹90,000 is shared ₹45,000 each.

Fixed and fluctuating capitals; drawings against capital and against profit

Under the fixed capital method each partner has a Capital A/c and a Current A/c. The Capital A/c changes only for additional capital introduced or capital permanently withdrawn, so it always has a credit balance. All other items (interest on capital, salary, commission, rent to a partner, share of profit, drawings, interest on drawings, interest on current account) go to the Current A/c, which may show a debit or credit balance.

Under the fluctuating capital method there is only a Capital A/c and every item goes to it, so its balance changes every year and can even become a debit.

A partner can withdraw money in two ways:

• Drawings against profit (temporary): debited to a Drawings A/c and transferred to the Current A/c (fixed) or Capital A/c (fluctuating) at the year-end. Interest on drawings is charged if the deed says so.
• Drawings against capital (permanent withdrawal): debited directly to the Capital A/c. No interest on drawings is charged on it; instead the capital is lower from that date, so interest on capital falls for the rest of the year.

If the question does not state the method, use fluctuating capitals. If it says capitals are fixed, every adjustment except a capital change goes through current accounts.

Worked example

Suppose Om, Pia and Raj follow the fixed capital method. During 2025-26 Om withdrew ₹20,000 at the middle of each half year, Pia withdrew ₹36,000 (date not known) to pay her son's school fees, and Raj withdrew ₹50,000 from his capital on 1st October 2025. Interest on drawings is 6% p.a. Find the interest on drawings. [2 marks]

Try it first, then show the solutionSolution

1. Om: ₹40,000 drawn at the middle of each half year, average period 6 months: 40,000 × 6/100 × 6/12 = ₹1,200.
2. Pia: date not known, so 6 months: 36,000 × 6/100 × 6/12 = ₹1,080.
3. Raj: a withdrawal of capital, debited to his Capital A/c; no interest on drawings (his interest on capital is reduced instead).

Answer: Om ₹1,200; Pia ₹1,080; Raj nil.

Charges against profit versus appropriations of profit

A charge is an expense of the firm that must be met whether or not there is profit. It is debited to the Profit and Loss Account. The ISC syllabus names these:

• Interest on a loan given by a partner to the firm: debit P&L A/c, credit the partner's Loan A/c.
• Rent due to a partner for premises used by the firm: debit Rent A/c (closed to P&L A/c), credit the partner's Current A/c (fixed capitals) or Capital A/c (fluctuating).
• Manager's commission: an employee's remuneration, debited to P&L A/c.
• Interest on a loan taken by a partner from the firm is the reverse: income of the firm, credited to the P&L A/c and debited to the partner's Capital or Current A/c.

An appropriation is a division of profit among the owners or a retention in the business. It is debited to the P&L Appropriation A/c: interest on capital, salary and commission to partners, interest on credit balances of current accounts and transfer to General Reserve. Interest on drawings and interest on debit balances of current accounts are credited to it.

The profit transferred from the P&L A/c, after all charges, is the correct trading profit. A partner's commission and a transfer to reserve stated as a percentage are worked on this figure, never on the divisible profit. If the commission is "after charging such commission", it is trading profit × r/(100 + r).

Worked example

Suppose a firm's profit before the manager's commission is ₹2,20,000. The manager gets 10% of the net profit after charging his commission. Partner Neha gets 5% of the trading profit as commission. Calculate both commissions and say where each is debited. [3 marks]

Try it first, then show the solutionSolution

1. Manager's commission = 2,20,000 × 10/110 = ₹20,000; a charge, debited to the Profit and Loss A/c.
2. Correct trading profit = 2,20,000 − 20,000 = ₹2,00,000, transferred to the P&L Appropriation A/c.
3. Neha's commission = 5% of ₹2,00,000 = ₹10,000; an appropriation, debited to the P&L Appropriation A/c and credited to her Current or Capital A/c.

Answer: Manager ₹20,000 (P&L A/c); Neha ₹10,000 (P&L Appropriation A/c).

Interest on capital, drawings and current account balances

Interest on capital is allowed only if the deed provides for it. Calculate it on the opening capital for the whole year, plus interest on additional capital from the date it was introduced, minus interest on capital permanently withdrawn from the date of withdrawal. For a firm that started during the year, count only the months from the start date. If only closing capital is given, work back: opening capital = closing capital + drawings + interest on drawings − share of profit − interest on capital and other credits − additional capital.

Interest on drawings is charged only if the deed says so.

• Uneven amounts or dates: product method: Σ(amount × months to year-end) × rate/100 × 1/12.
• Equal amounts at regular intervals: average period: monthly at the beginning 6.5, middle 6, end 5.5 months; quarterly at the beginning 7.5, middle 6, end 4.5 months; half-yearly at the middle of each half 6 months.
• Date not given: 6 months.
• A flat rate ("10%", not "10% p.a.") is charged on the total without time.

Interest on current accounts (fixed capitals) is allowed on credit balances and charged on debit balances when the deed says so: allowed interest is an appropriation (debit P&L Appropriation A/c), charged interest is credited to the P&L Appropriation A/c.

Worked example

Suppose Neel and Ruhi start a firm on 1st July 2025 with fixed capitals of ₹3,00,000 and ₹2,00,000. On 1st January 2026 Neel brings ₹60,000 more and Ruhi withdraws ₹20,000 of capital. Interest on capital is 10% p.a. Calculate interest on capital for the year ended 31st March 2026. [3 marks]

Try it first, then show the solutionSolution

1. The firm started on 1st July, so the year has 9 months, not 12.
2. Neel: 3,00,000 × 10% × 9/12 = 22,500; plus 60,000 × 10% × 3/12 = 1,500; total ₹24,000.
3. Ruhi: 2,00,000 × 10% × 9/12 = 15,000; less 20,000 × 10% × 3/12 = 500; total ₹14,500.

Answer: Neel ₹24,000; Ruhi ₹14,500.

When profit is insufficient for the appropriations

Appropriations need profit. If the profit available (trading profit plus interest on drawings) is less than the total of interest on capital, salary and commission agreed in the deed, the partners cannot be paid all of them, and the firm cannot "create" a loss by appropriating more than it has.

The ISC treatment is to distribute the available profit in the ratio of the appropriations: each appropriation is reduced in the proportion profit available ÷ total appropriations. Nothing is then left to share in the profit sharing ratio.

• If there is a loss, no appropriations are made at all: the loss is shared in the profit sharing ratio.
• If the deed treats interest on capital as a charge, allow it in full even if this produces a loss, and share that loss in the profit sharing ratio.
• Interest on a partner's loan and rent to a partner are charges in every case.

Worked example

Suppose Asha and Bimal share profits 3 : 2. The deed provides interest on capital of ₹30,000 for Asha and ₹20,000 for Bimal, a salary of ₹24,000 for Bimal and a commission of ₹6,000 for Asha. Profit available is only ₹60,000. Show how it is distributed. [3 marks]

Try it first, then show the solutionSolution

1. Total appropriations = 30,000 + 20,000 + 24,000 + 6,000 = ₹80,000; profit available ₹60,000, so each is scaled by 60,000/80,000 = 3/4.
2. Asha: interest on capital ₹22,500, commission ₹4,500; Bimal: interest on capital ₹15,000, salary ₹18,000.
3. Total 22,500 + 4,500 + 15,000 + 18,000 = ₹60,000; nothing is left to share 3 : 2.

Answer: Asha ₹27,000 (22,500 interest + 4,500 commission); Bimal ₹33,000 (15,000 interest + 18,000 salary).

Guarantee of profit

A partner may be guaranteed a minimum amount of profit. Divide the divisible profit in the normal ratio first. If the guaranteed partner's share is less than the guarantee, the deficiency is made good by the partner(s) giving the guarantee: in the agreed ratio, otherwise in their own profit sharing ratio. If one partner alone gives the guarantee, he alone bears it.

Show it in the P&L Appropriation A/c as "share − deficiency borne" for the giving partners and "share + deficiency" for the guaranteed partner; the total must still equal the divisible profit. A guarantee can also be given by the firm to a partner, or by a partner that his own earnings (for example fees from his own practice) will not be less than a figure; then he makes good the shortfall.

The syllabus excludes the admission of a manager as a partner from guarantee and past adjustment questions.

Worked example

Suppose Chirag, Dev and Esha share profits 3 : 2 : 1 with fixed capitals. Esha is guaranteed a minimum share of ₹50,000; any deficiency is borne by Chirag and Dev in 2 : 3. Net profit is ₹2,64,000 and interest on capital is Chirag ₹12,000, Dev ₹8,000 and Esha ₹4,000. Prepare the P&L Appropriation A/c. [4 marks]

Try it first, then show the solutionSolution

1. Divisible profit = 2,64,000 − 24,000 = ₹2,40,000. Normal shares: Chirag 1,20,000; Dev 80,000; Esha 40,000.
2. Deficiency = 50,000 − 40,000 = ₹10,000; Chirag bears 2/5 = ₹4,000, Dev 3/5 = ₹6,000.
3. Profit and Loss Appropriation Account for the year ended 31st March 2026

   Dr: Particulars	₹	Cr: Particulars	₹
   To Interest on Capital A/c: Chirag 12,000; Dev 8,000; Esha 4,000	24,000	By Profit and Loss A/c	2,64,000
   To Chirag's Current A/c (1,20,000 − 4,000)	1,16,000
   To Dev's Current A/c (80,000 − 6,000)	74,000
   To Esha's Current A/c (40,000 + 10,000)	50,000
   Total	2,64,000	Total	2,64,000

Answer: Chirag ₹1,16,000, Dev ₹74,000, Esha ₹50,000 (besides interest on capital).

Past adjustments through a single entry

If, after the accounts are closed and profit is distributed, an item is found to have been omitted or wrongly treated (interest on capital, interest on drawings, salary, commission, or the profit sharing ratio), the old accounts are not reopened. One adjusting entry puts every partner where he should have been.

Prepare an adjustment table:

1. Credit each partner with what he should have received (interest on capital, salary, commission).
2. Debit what he should have been charged (interest on drawings).
3. The net omitted amount reduces (or increases) the profit already distributed: reverse it in the old profit sharing ratio.
4. The net column must total zero; debit the partners with a net debit and credit those with a net credit.

Under fixed capitals the entry passes through current accounts. If the ratio itself was wrong, compare what each received with what each should have received.

Worked example

Suppose Ishan, Jaya and Kunal share profits 2 : 2 : 1 with fixed capitals of ₹5,00,000, ₹3,00,000 and ₹2,00,000. After the accounts for 2025-26 were closed it was found that interest on capital at 6% p.a., Jaya's salary of ₹1,000 a month and interest on Ishan's drawings of ₹1,500 had been omitted. Pass the single adjusting entry. [3 marks]

Try it first, then show the solutionSolution

1. 	Ishan	Jaya	Kunal	Total
   Interest on capital (Cr)	30,000	18,000	12,000	60,000
   Salary (Cr)		12,000		12,000
   Interest on drawings (Dr)	(1,500)			(1,500)
   Net amount omitted	28,500	30,000	12,000	70,500
   Less profit over-distributed, 70,500 in 2 : 2 : 1	(28,200)	(28,200)	(14,100)	(70,500)
   Net	300 Cr	1,800 Cr	2,100 Dr	0

2. Particulars	Dr (₹)	Cr (₹)
   Kunal's Current A/c ... Dr	2,100
   To Ishan's Current A/c		300
   To Jaya's Current A/c		1,800
   (Being omissions of 2025-26 adjusted)

Answer: Kunal's Current A/c Dr ₹2,100; To Ishan's Current A/c ₹300; To Jaya's Current A/c ₹1,800.

Fundamentals of Partnership in real life

Each concept, met in an everyday situation. Read the situation, answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Topics in this chapter

• Profit and Loss Appropriation Account
• Fixed and Fluctuating Capital Accounts
• Past Adjustments in Partnership

Fundamentals of Partnership: key facts

Interest on capital

Add, on opening capital	capital × r × months/12
Add, on additional capital	amount × r × months from introduction/12
Subtract, on capital withdrawn	amount × r × months from withdrawal/12

For a firm started during the year, count months from the start date.

Opening capital worked back

Closing capital + drawings + interest on drawings + losses − profit share − interest on capital − salary/commission credited − additional capital

Reverse every entry made during the year; interest on capital may itself be a percentage of the unknown opening capital.

Interest on drawings (product method)

Σ(amount × months to year-end) × rate/100 × 1/12

Interest on drawings (average period)

Total drawings × rate/100 × average period/12

Monthly: beginning 6.5, middle 6, end 5.5. Quarterly: beginning 7.5, middle 6, end 4.5. Date unknown: 6 months.

Commission after charging such commission

Trading profit before commission × r/(100 + r)

Before charging: r% of trading profit. Never on divisible profit.

Insufficient profit

Each appropriation × (profit available ÷ total appropriations)

Profit available = trading profit + interest on drawings (and on debit current balances).

Divisible profit

Trading profit + interest on drawings + interest on debit current balances − reserve − interest on capital − interest on credit current balances − salary − commission

How the board asks Fundamentals of Partnership

The question patterns to expect, and the method that works for each.

Tricks to remember Fundamentals of Partnership

Short memory aids. Say each one aloud once, then use it on a question the same day.

• Charge or appropriation: the stranger test

  If an outsider (a bank, a landlord, a manager) would be paid it, it is a charge to the P&L A/c. If only an owner gets it, it is an appropriation.

  Use it when: Loan interest, rent, manager's commission versus interest on capital, salary, partner's commission.

• Deed silent: "Equal, Nil, Nil, Nil, Six"

  Equal profit sharing; Nil interest on capital; Nil interest on drawings; Nil salary; Six per cent on loans.

  Use it when: Settling disputes when there is no deed.

• Average periods: 6.5, 6, 5.5 and 7.5, 6, 4.5

  Monthly: begin-middle-end = 6.5, 6, 5.5. Quarterly: 7.5, 6, 4.5. Each step back by half the interval.

  Use it when: Interest on regular drawings.

Fundamentals of Partnership: board-level solved questions

Ordered from board level to HOTS. Cover the solution, write your own, then compare step by step.

Case-study practice (Section A style)

Read the situation, then answer every part. In the board paper this is a 8-mark question split into 2 + 2 + 3 + 1 marks.

Where the marks are

How a typical answer is split into step marks. Show every step: a right final answer alone rarely earns full marks.

Where students lose marks in Fundamentals of Partnership

The slips examiners see most often, and what to write instead.

• ✗Mistake: Calculating commission on profit before charging it

  CISCE examiners' comments, 2024: "Used 'commission on trading profit before charging commission' formula".

  Wrong working

  Commission = 5% × 3,15,000 = 15,750

  Right working

  Commission after charging = 3,15,000 × 5/105 = 15,000

  ✓Do this: Underline "after charging such commission" and use r/(100 + r).

  Usually costs: 1 mark, and the divisible profit and shares go wrong too.

• ✗Mistake: Ignoring a permanent withdrawal of capital when calculating interest on capital

  CISCE examiners' comments, 2024: "Ignored Ravi's permanent withdrawal in interest on capital"; also "Passed the entry for temporary withdrawal instead of permanent withdrawal".

  ✓Do this: Debit a permanent withdrawal to the Capital A/c and reduce interest on capital from that date; no interest on drawings on it.

  Usually costs: 1-2 marks in the 10-mark question.

• ✗Mistake: Taking rent to a partner to the appropriation account, or posting to capital accounts under fixed capitals

  CISCE examiners' comments, 2025: "Rent A/c transferred to P&L Appropriation instead of P&L; entries made through capital instead of current accounts under fixed capital method."

  ✓Do this: Rent is a charge: Rent A/c → P&L A/c. With fixed capitals, every item except a capital change goes to the Current A/c.

  Usually costs: 1-2 marks.

• ✗Mistake: Calculating interest for 12 months in a firm that started during the year

  CISCE examiners' comments, 2025: "Interest on capital and rent calculated for 12 months instead of 9."

  ✓Do this: Check the start date of the firm and every addition or withdrawal before writing any interest.

  Usually costs: 1 mark per item.

• ✗Mistake: Showing a loss in the appropriation account when profit is insufficient

  CISCE examiners' comments, 2025: "Showed loss distributed between partners; did not realise profits insufficient and must be shared in ratio of appropriations."

  ✓Do this: If total appropriations exceed the profit available, scale each in the ratio of appropriations; the account closes with no loss.

  Usually costs: Most of a 5-6 mark part.

• ✗Mistake: Wrong account names in entries and headings

  CISCE examiners' comments, 2024: "Debited Divisible Profits A/c or P&L A/c instead of P&L Appropriation A/c"; CISCE examiners' comments, 2025: "Wrote 'By Net Profit' instead of 'By P&L A/c'; omitted heading and date."

  ✓Do this: Distribution of profit: P&L Appropriation A/c Dr. In the account write "By Profit and Loss A/c" and give the heading with the year.

  Usually costs: ½-1 mark each.

Practice questions on Fundamentals of Partnership

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

1. Q1 · 1 mark · MCQBoard level

   In the absence of a deed, a partner who has given a loan of ₹50,000 to the firm on 1st October is entitled to interest up to 31st March of:
   (a) ₹1,500
   (b) ₹3,000
   (c) ₹2,500
   (d) Nil

   Hint

   Six per cent per annum, for how many months?

   Answer

   (a) ₹1,500 = 50,000 × 6% × 6/12.

2. Q2 · 2 marks · Short answerBoard level

   A partner withdrew ₹10,000 on 1st June, ₹15,000 on 30th September and ₹20,000 on 1st January. Interest on drawings is 9% p.a. and the year ends on 31st March. Calculate interest on drawings by the product method.

   Hint

   Months to year-end: 10, 6 and 3.

   Answer

   Products 1,00,000 + 90,000 + 60,000 = 2,50,000; interest = 2,50,000 × 9/100 × 1/12 = ₹1,875.

3. Q3 · 2 marks · Short answerBoard level

   State whether each is a charge or an appropriation, and the account debited: (a) salary to a partner; (b) interest on a partner's loan; (c) manager's commission; (d) transfer to General Reserve.

   Hint

   Stranger test.

   Answer

   (a) Appropriation, P&L Appropriation A/c. (b) Charge, P&L A/c. (c) Charge, P&L A/c. (d) Appropriation, P&L Appropriation A/c.

4. Q4 · 3 marks · Short answerHOTS / competency

   Leela's capital on 31st March 2026 was ₹4,01,300. During the year she brought additional capital of ₹50,000 on 1st October 2025 and withdrew ₹40,000; her share of profit was ₹60,000 and interest on drawings ₹1,200. Interest on capital is 10% p.a. Find her capital on 1st April 2025.

   Hint

   Interest on opening capital is 10% of the unknown; interest on the new capital is for 6 months.

   Answer

   Closing = 1.1 × Opening + 50,000 + 2,500 + 60,000 − 40,000 − 1,200 = 1.1 × Opening + 71,300. So 1.1 × Opening = 3,30,000 and opening capital = ₹3,00,000.

5. Q5 · 3 marks · Short answerHarder board level

   Profit before partner's commission is ₹2,52,000. Partner Rohan is entitled to 5% commission on the trading profit after charging such commission. Calculate his commission and pass the adjusting entry under fixed capitals.

   Hint

   r/(100 + r).

   Answer

   Commission = 2,52,000 × 5/105 = ₹12,000. Commission A/c Dr ₹12,000 To Rohan's Current A/c ₹12,000; closing entry P&L Appropriation A/c Dr ₹12,000 To Commission A/c ₹12,000.

6. Q6 · 3 marks · Short answerHarder board level

   X and Y shared the profit of ₹1,50,000 for 2025-26 equally, but the deed provides a ratio of 3 : 2 and interest on capital of ₹10,000 each, which was not allowed. Pass the adjusting entry.

   Hint

   Work out what each should have received, then compare.

   Answer

   Should have: interest 10,000 each; balance 1,30,000 in 3 : 2 = 78,000 and 52,000; totals X 88,000, Y 62,000. Received 75,000 each. Y's Capital A/c Dr ₹13,000 To X's Capital A/c ₹13,000.

7. Q7 · 2 marks · Short answerHarder board level

   Explain, with the journal entry, how interest on a debit balance of a partner's current account is treated.

   Hint

   It is like interest on drawings.

   Answer

   It is charged to the partner and is a gain to the firm at the appropriation stage: Partner's Current A/c Dr To Interest on Current A/c; then Interest on Current A/c Dr To P&L Appropriation A/c.

8. Q8 · 2 marks · Short answerBoard level

   Sana and Tia share profits 2 : 1. Tia is guaranteed ₹60,000 by the firm. Divisible profit is ₹1,50,000. Show the division.

   Hint

   A guarantee by the firm is borne by the other partner(s) in their ratio.

   Answer

   Normal: Sana 1,00,000, Tia 50,000. Deficiency 10,000 borne by Sana. Sana ₹90,000, Tia ₹60,000.

9. Q9 · 2 marks · Short answerHOTS / competency

   A firm began on 1st July 2025. Uma's capital was ₹3,00,000 and interest on capital is 10% p.a. A student wrote ₹30,000 as her interest for 2025-26. Identify and correct the error.

   Hint

   How long has the money been in the firm by 31st March?

   Answer

   Interest must be for 9 months only: 3,00,000 × 10% × 9/12 = ₹22,500, not ₹30,000.

10. Q10 · 3 marks · Short answerHOTS / competency

    Profit for the year was ₹96,000. The deed allows interest on capital to Pari (₹48,000) and Quentin (₹32,000) and salary to Quentin (₹40,000). Show the distribution and explain why no loss is shown in the appropriation account.

    Hint

    Total appropriations ₹1,20,000.

    Answer

    Scale by 96,000/1,20,000 = 0.8: Pari interest ₹38,400; Quentin interest ₹25,600 and salary ₹32,000. Appropriations are divisions of profit, so they cannot exceed it; the account closes with no balance.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1. 1.What is the real test of partnership?Show answer

   Mutual agency: the business is carried on by all or any of them acting for all.

2. 2.Interest on a partner's loan when the deed is silent?Show answer

   6% p.a., a charge debited to the P&L A/c and credited to the Loan A/c.

3. 3.Where does rent to a partner go under fixed capitals?Show answer

   Debit Rent A/c (closed to P&L A/c); credit the partner's Current A/c.

4. 4.On what profit are partner's commission and reserve calculated?Show answer

   The correct trading profit, not the divisible profit.

5. 5.How is insufficient profit distributed?Show answer

   In the ratio of the appropriations (interest on capital, salary, commission).

6. 6.Average period for drawings at the beginning of each quarter?Show answer

   7.5 months.

Quick revision checklist

The night before the exam: can you do each of these without looking?

• ☐Deed silent: equal sharing, no interest on capital or drawings, no salary, 6% p.a. on partner's loan.
• ☐Charges to P&L A/c: interest on partner's loan, rent to partner, manager's commission; interest on loan to a partner is income.
• ☐Appropriations: interest on capital and on credit current balances, salary, commission, reserve; credits: interest on drawings and on debit current balances.
• ☐Commission and reserve on correct trading profit; "after charging" = r/(100 + r).
• ☐Insufficient profit: ratio of appropriations, no loss shown. Loss: no appropriations.
• ☐Past adjustments: adjustment table, net zero, one entry through current accounts under fixed capitals.

Fundamentals of Partnership: frequently asked questions