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Class 12 Accounting for Partnership: Basic Concepts: cheat sheet
CBSE Accountancy. The partnership deed and the rules when it is silent, fixed and fluctuating capitals, interest on capital and drawings, the appropriation account, guarantees and past adjustments.
Key ideas
- If the deed is silent: profits are shared equally, no interest on capital or drawings, no salary or commission, and 6% a year on a partner’s loan.
- Under the fixed capital method the capital accounts stay unchanged and every adjustment goes to current accounts; under the fluctuating method it all goes to the capital accounts.
- The Profit and Loss Appropriation Account is credited with the net profit and interest on drawings, and debited with interest on capital, salary and commission; the rest is shared in the profit-sharing ratio.
- Interest on capital runs for the whole year on the opening capital, and on additional capital only from the date it was brought in.
- Interest on drawings is charged for the average time each amount was out: equal monthly drawings give 6.5 months (start of month), 6 (middle) or 5.5 (end).
- A partner guaranteed a minimum profit is paid the deficiency by the guaranteeing partners in their own ratio.
- A past omission is put right with one adjusting entry: what each partner should have got, less what each is charged back in the profit-sharing ratio.
Remember
| Interest on capital | capital × rate ÷ 100 (+ additional capital × rate ÷ 100 × months ÷ 12) |
| Drawings evenly or of unknown dates | total drawings × rate ÷ 100 × 6 ÷ 12 |
| Drawings on different dates | each amount × rate ÷ 100 × months left to 31 March ÷ 12 |
| Commission on profit after charging it | profit × c ÷ (100 + c) |
| Divisible profit | net profit + interest on drawings − interest on capital − salary − commission |
| Closing capital (fluctuating) | opening + interest on capital + salary + share of profit − drawings − interest on drawings |
| Deficiency under a guarantee | guaranteed amount − actual share, borne by the guarantors in their ratio |
Watch out
- Allowing interest on capital, salary or commission when the deed is silent.
- Using 6 months for equal drawings at the start of every month (it is 6.5).
- Debiting interest on drawings in the appropriation account: it is credited.
Worked example
Ananya, Vikram and Arjun share profits 4 : 3 : 1. Their capitals were Ananya ₹60,000, Vikram ₹70,000, Arjun ₹1,00,000. After the accounts were closed, it was found that interest on capital at 10% per annum had been omitted. Pass one adjusting journal entry, showing your working.
Working: interest due: Ananya ₹6,000, Vikram ₹7,000, Arjun ₹10,000 (total ₹23,000); charged back in 4 : 3 : 1: Ananya ₹11,500, Vikram ₹8,625, Arjun ₹2,875; net: Ananya −₹5,500, Vikram −₹1,625, Arjun +₹7,125
Answer: Ananya’s Capital A/c Dr. ₹5,500 Vikram’s Capital A/c Dr. ₹1,625 To Arjun’s Capital A/c ₹7,125
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