Tag: interest on partner's drawings and capital

Questions Related to interest on partner's drawings and capital

Which of the following statements is true ?

book keeping and accountancy adjustments drawing account of partners interest on drawings interest on partner's drawings and capital

  1. When separate set of books is maintained, expenses paid by venturer will be credited to joint bank account.

  2. When separate set of books is maintained, expenses paid by venturer will be credited to venturer's capital account.

  3. When separate set of books is maintained, expenses paid by venturer will be credited to Jt. Venture account.

  4. When separate set of book is maintained, expenses paid by venturer will be credited to Outstanding Expenses Account.

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Correct Option: B

A and B entered into a joint venture contract. They opened a joint bank account by contributing Rs. 1,00,000 each. The expenses incurred on contract were Rs. 1,00,000. Contract money received by cheque was Rs. 2,00.000 and in shares Rs. 50,000. The shares are sold for Rs. 40,000. What will be the profit on venture ?

book keeping and accountancy adjustments drawing account of partners interest on drawings interest on partner's drawings and capital

  1. Rs. 1,50,000

  2. Rs. 1,40,000

  3. Rs. 2,40,000

  4. Rs. 2,00,000

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Correct Option: B

How would you close the Partner's Drawing Account?

book keeping and accountancy adjustments drawing account of partners interest on drawings interest on partner's drawings and capital

  1. By transfer to the debit of Capital or Current Account

  2. By transfer to the credit of Capital Account

  3. By transfer to the credit of Current Account

  4. Either b or c

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Correct Option: A

A Ltd. has allotted $20,000$ shares to the applicants of $28,000$ shares on pro-rata basis. The amount payable on application is $Rs. 2$. M applied for $420$ shares. The number of shares allotted and the amount carried forward for adjustment against allotment money due from Mr. X will be ______________.

book keeping and accountancy adjustments drawing account of partners interest on drawings interest on partner's drawings and capital

  1. $60$ shares; $Rs. 120$

  2. $340$ shares; $Rs. 160$

  3. $300$ shares; $Rs. 200$

  4. $300$ shares; $Rs. 240$

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Correct Option: D

Partners are supposed to pay interest on drawing only when provided by the ______________.

book keeping and accountancy adjustments drawing account of partners interest on drawings interest on partner's drawings and capital

  1. Partnership Act

  2. None of these

  3. Agreement

  4. Both a and c

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Correct Option: C
Explanation:

Interest on Drawings: No interest is to be charged on the drawings made by the partners, if there is no mention in the Agreement and  If a partner carries on any business of the same nature as and competing with that of the firm, he/she shall account for and pay to the firm, all profit made by him/her in that business.

Interest on Drawings is:

book keeping and accountancy adjustments drawing account of partners interest on drawings interest on partner's drawings and capital

  1. Debited to P/L A/C

  2. Credited to P/L A/C

  3. Debited to capital A/C

  4. None

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Correct Option: C
Explanation:

Interest on Drawings will be debited to capital account. Interest on drawing is an income for the firm and is payable by the partners to the firm hence, is deducted/debited. Interest is charge on the money/goods taken by the partners for their personal use during the year. 

John, a partner in Modern Tours and Travels withdrew money during the year ending March 31, 2016 from his capital account, for his personal use. Calculate interest on drawings, if rate of interest is 9 per cent per annum.  If an amount of Rs. $3,000$ per month was withdrawn by him at the end of each month.

book keeping and accountancy adjustments drawing account of partners interest on drawings interest on partner's drawings and capital

  1. Rs. $1,580$

  2. Rs. $2,355$

  3. Rs. $1,955$

  4. Rs. $1,485$

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Correct Option: D
Explanation:

Using the average method:

Interest on Drawings = (3,000 x 12) x 9/100 x [(longest outstanding period + shortest outstanding period)/2]/12
= (3,000 x 12) x 9/100 x [(11 + 0)/2]/12
= (3,000 x 12) x 9/100 x (5.5/12)
= 1,485

John, a partner in Modern Tours and Travels withdrew money during the year ending March 31, 2016 from his capital account, for his personal use. Calculate interest in drawings if rate of interest is $9$ per cent per annum and If he withdrew Rs. $3,000$ per month at the beginning of the month.

book keeping and accountancy adjustments drawing account of partners interest on drawings interest on partner's drawings and capital

  1. Rs. $1,485$

  2. Rs. $2,845$

  3. Rs. $1,755$

  4. Rs. $1,580$

Show answer
Correct Option: C
Explanation:

Using the average method:

Interest on drawings = (3,000 x 12) x 9/100 x [(longest outstanding period+shortest outstanding period)/2]/12
=(3,000 x 12) x 9/100 x [(12+1)/2]/12
=36,000 x 9/100 x 6.5/12
=1,755

Interest on drawings is _________.

book keeping and accountancy adjustments drawing account of partners interest on drawings interest on partner's drawings and capital

  1. Expenditure for the business

  2. Expense for the business

  3. Gain for the business

  4. Loss for the business

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Correct Option: C
Explanation:

Business entity concept defines that firm and its owners are having separate legal entity. 

Hence, capital is shown as liability and interest charged on capital is considered as expenses. 
Opposite to this, interest charged on drawing is to be debited to capital account and its a gain for the business.

A and B enter into a joint venture sharing profit and losses in the ratio 2:3. Goods were purchased by A for Rs. 55,000. Expenses incurred by A Rs. 3,500 and by B Rs. 5.200. B sold the goods for Rs. 80,000. Remaining stock was taken over by B at Rs. 12,200. What will be the final remittance to be made by B to A?

book keeping and accountancy adjustments drawing account of partners interest on drawings interest on partner's drawings and capital

  1. Rs. 69,900

  2. Rs. 92 200

  3. Rs. 28,500

  4. None

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Correct Option: A