GIFT UNIVERSITY

Financial accounting 2 Assignment 1

Fall 2011 SESSION
Issues related to the partnership accounts
Following are the issues related to the partnership accounts:
1. Interest on capital
The amount of interest on capital is to be calculated on the time basis after taking into
consideration the with drawl or introducing of capital. Interest on capital is chargeable to the
extent of available profit only.
Treatment:
Example:-
L and M are partners sharing profit and loses in the ratio of 3:2. They earn Rs 90,000
as profit before allowing an interest of 10% per annum. Ls Capital was 720,000 and M`s Capital was
360,000.
Solution:
L`s interest = 720,000*10/100
= Rs. 72,000
M`s Capital = 360,000*10/100
= Rs. 36,000
2. Partners Drawings
For meeting personnel needs partner may require to draw money from the firm in varying
amounts. They can draw money against their salary, commission or profit from the business.
Treatment:
When drawings are made the drawing accounts in the name of each partner is debited and cash
account is credited. At the end of the period the drawing account is credited and the partners capital
account is debited.
3. Interest on drawings
If there is a provision in the partnership deed, only then the interest on drawing is to be charged.
Treatment:
It is gain for the firm so it is credited in the profit and loss appropriation account and debited in
the partners capital account.
i. If partner draw an amount at the beginning of each month then the interest on drawing
will be equal to the interest of 6.5 months.
ii. If partner draw an amount at the end of each month then the interest on drawing will be
equal to the interest of 5.5 months.
iii. If partner draw an amount at the mid of each month then the interest on drawing will be
equal to the interest of 6.0 months.

4. Partners salaries, commission, etc
Like interest on capital, partners are also not allowed any type of salary or commission unless
specifically provided in the agreement.
Treatment:
Like labor took salary for their work in the company similarly partner took salary. Some partners
remain sleeping partners in the business but some are taking full contribution in the business so
their salary should be given to them because of their more effort than the sleeping partners.
5. Appropriation of net income
In case of partner ship account there is a need to make an account which tell us division of profit
and loss among the partners. This shows how the profit and loss is being apportioned among the
partners.
Treatment:
In it we will add interest on capital and net profit in the opening balance and less interest on
drawings and also the drawings.
6. Sharing of profit
The partnership deed is provided the ratio in which the profit and loss of the business is shared
but if partnership is silent in this point then the profit and the loss is shared among the partners
equally.
Treatment:
Each and every partner is contributed the capital in the business in some ratio then there is a
duty of business that it give profit and loss to the partner in that ratio but some times that ratio
is not mentioned then the profit and loss of the business is distributed equally.
7. Partners loan accounts
Some time business is run short of money then to run business some time one or more partners
gave some loan to the business.
Treatment:
When the partner provided such types of loans then this loan account is credited separately and
not included in the partners capital account.
8. Interest on Partners loan accounts
Generally partner got interest on the loan at the fixed rate but if partner ship deed is silent at
this point then the partner got interest on the rate of 6% per annum.