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FAQs on TS Grewal Class 12 Accountancy Solutions: Chapter 1 Overview
1. What is the correct method for calculating interest on a partner's drawings for Class 12 Accountancy problems?
To solve problems involving interest on drawings, you should first check if the amounts and dates of drawings are uniform. If a partner withdraws a fixed amount at regular intervals, you can use the Average Period Method. If the drawing amounts or intervals are irregular, you must use the Product Method, where you multiply each drawing amount by the period it was used and then calculate interest on the total product for one month.
2. How do I prepare a Profit and Loss Appropriation Account for Chapter 1 questions?
The Profit and Loss Appropriation Account shows how the net profit is distributed among partners. Follow these steps:
- Start by crediting the Net Profit transferred from the P&L Account.
- Also, credit the total Interest on Drawings collected from partners.
- Debit all appropriations like Interest on Capital, Partner's Salary, and Partner's Commission.
- The final balancing figure is the divisible profit or loss, which is then transferred to the partners' capital or current accounts in their profit-sharing ratio.
3. Why is a Profit and Loss Appropriation Account prepared separately from the Profit and Loss Account?
The two accounts serve different purposes. The Profit and Loss Account is prepared to find the firm's net profit or loss for the year by deducting all 'charges against profit' (like rent or interest on a loan). In contrast, the Profit and Loss Appropriation Account is prepared after this to show how that net profit is distributed or 'appropriated' among partners as per the Partnership Deed. Appropriations are only made if there is a profit, whereas charges must be paid even if there is a loss.
4. What happens if the Partnership Deed is silent on interest on capital or the profit-sharing ratio?
When solving a problem where the Partnership Deed is silent on key clauses, you must apply the rules of the Indian Partnership Act, 1932. According to the Act:
- No interest on capital is to be paid to any partner.
- No interest on drawings is to be charged.
- Profits and losses are to be shared equally among all partners, regardless of their capital contribution.
- Interest on a partner's loan to the firm is paid at 6% per annum.
5. How does the treatment of 'rent paid to a partner' differ from 'partner's salary' in the final accounts?
This is a crucial distinction. Rent paid to a partner for using their personal property is a 'charge against profit'. This means it is a business expense and must be debited to the Profit and Loss Account before calculating net profit. In contrast, a partner's salary is an 'appropriation of profit'. It is only paid if the firm earns a profit and is debited to the Profit and Loss Appropriation Account.
6. What are the key adjustments needed when a partner is given a 'Guarantee of Profit'?
When a partner is guaranteed a minimum profit amount, you first calculate their actual share of profit. If their actual share is less than the guaranteed amount, there is a deficiency. This deficiency is then borne by the guaranteeing partner(s) in their agreed-upon ratio. The deficient amount is debited from the guaranteeing partners' accounts and credited to the partner who received the guarantee.
7. When solving problems, what is the practical difference between using the Fixed and Fluctuating Capital methods?
The main difference lies in how you record transactions. Under the Fixed Capital Method, you maintain two accounts: the Capital Account (which only changes with additional capital or permanent withdrawals) and the Current Account (for all other adjustments like salary, interest, drawings, and profit). Under the Fluctuating Capital Method, you only use one account, the Capital Account, where all these adjustments are recorded, causing the balance to fluctuate every year.
