Tag: book keeping and accountancy

Questions Related to book keeping and accountancy

Partners are supposed to pay interest on drawings only when ______ by the _________. 

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

  1. Provided, agreement

  2. Permitted, Investors

  3. Agreed, partners

  4. A & C above 

Show answer
Correct Option: D
Explanation:
Partners are supposed to pay interest on drawings only when they are provided by the agreement and are agreed by the partners. 

If a fixed amount is withdrawn on the middle day of every quarter of a calendar year, the interest on total amount of drawings will be calculated for ________. 

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

  1. 4.5 months

  2. 5.5 months

  3. 6 months

  4. 6.5 months

Show answer
Correct Option: C
Explanation:
If a fixed amount is withdrawn on middle day of every quarter of the calendar year, the interest on the total amount of drawings will be calculated for 6 months. Average period will be calculated as:-
= Months left after first drawing + months left after last drawing 
 ------------------------------------------------------------------------------------------
                                                        2
= 10.5 + 1.5
------------
       2
= 6 months

Explanation:- 
Suppose if the first drawing is made on ( 1st quarter January to March) 15th February then 10.5 months will be left and in the last quarter October to December last drawing will be made on 15th November and 1.5 months will be left. 

If a fixed amount is withdrawn on the last day of every quarter of a calendar year, the interest on the total amount of drawings will be calculated for __________.

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

  1. 4.5 months

  2. 5.5 months

  3. 6 months

  4. 6.5 months

Show answer
Correct Option: A
Explanation:
If a fixed amount is withdrawn on last day of every quarter of the calendar year, the interest on the total amount of drawings will be calculated for 6.5 months. Average period will be calculated as:-
= Months left after first drawing + months left after last drawing 
 ------------------------------------------------------------------------------------------
                                                        2
= 9 + 0 
------------
       2
= 4.5 months

Explanation:- 
Suppose if the first drawing is made on 31st march( 1st quarter Jan-march) then 9 months will be left and in the last quarter October to December last drawing will be made on 31st December and 0 months will be left. 

A Drawn Rs.1000 per month on the last day of every month. If the rate of interest is 5% p.a. then the total interest or drawings will be:

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

  1. Rs. 325

  2. Rs. 275

  3. Rs. 300

  4. Rs. 350

Show answer
Correct Option: B
Explanation:
Interest on drawing = Total drawings x rate of interest x average period/12
                                 = 1,000 x 12 x 5/100 x 5.5/12 (WN 1)
                                 = 12,000 x 5% x 5.5/12
                                 = RS-275.

Working note:-
Average period = Beginning period of use + end period of use
                             ------------------------------------------------------------------
                                                                2
                           = 11 + 0
                             --------
                                 2
                          = 5.5 

Where will you record interest on drawings? 

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

  1. Debit side of Profit & Loss Appropriation Account. 

  2. Credit side of Profit & Loss Appropriation Account. 

  3. Credit side of Profit & Loss Account. 

  4. Debit side of Capital/Current Account only. 

Show answer
Correct Option: B
Explanation:

Interest on drawings will be shown on the credit side of the profit and loss appropriation account. Interest on drawings is the interest charged by the firm on the drawings made by the partners. It is a source of income for the firm and hence, it is to be credited to profit and loss appropriation account. 

Kamal and Vimal are partners in a firm. They share profits equally. Their monthly drawings are Rs 2,000 each. Interest on drawings is to be charged at 10% p.a. Calculate interest on Kamal and Vimal's drawings for the year 2016, assuming that amount is withdrawn in the beginning of every month.

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

  1. Rs 1,300 and Rs 1,100

  2. Rs 1,200 and Rs 1,200

  3. Rs 1,100 and Rs 1,100

  4. Rs 1,300 and Rs 1,300

Show answer
Correct Option: D
Explanation:
Interest on drawings = Amount withdrawn x rate x average period / 12
                                   = 2,000 x 12 x 10/100 x 6.5/12
                                   = 24,000 x 10/100 x 6.5/12
                                   = RS-1,300 for both Kamal and Vimal. 

Ajay and Vijay are partners in a firm. They share profits in the ratio of 3:2. As per their partnership agreement, interest on drawings is to be charged @ 10% p.a. Their drawings during 2017 were Rs 24,000 and Rs 16,000, respectively. Calculate interest on drawings based on the assumption that the amounts were withdrawn evenly, throughout the year.

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

  1. Rs 1,200 and Rs 800

  2. Rs 1,500 and Rs 900

  3. Rs 1,800 and Rs 1,200

  4. Rs 1,000 and Rs 600

Show answer
Correct Option: A
Explanation:
Interest on Drawings = Amount withdrawn x rate of interest x 6/12 (evenly)
AJAY:-
= 24,000 x 10/100 x 6/12
= RS-1,200.

VIJAY:-
= 16,000 x 10/100 x 6/12
= RS-800.

Calculate the interest on drawings of Ram @ 10% p.a. for the year ended 31st March 2017, If he withdrew Rs 3,000 at the end of every month. Assuming that drawings were made evenly throughout the year.

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

  1. Rs 1,850

  2. Rs 1,650

  3. Rs 1.250

  4. Rs 1,350

Show answer
Correct Option: B
Explanation:

Assuming that the drawings were made evenly throughout the year, the interest on drawings has been calculated for an average period of 6 months.
Interest on Drawings = Total Drawings x Rate/100 x 5.5/12

Interest on Drawings = Rs. 3000 $\times$ 12 $\times$ 10/100 $\times$ 5.5/12
Interest on Drawings =  Rs. 1650

Harish is a partner in a firm. He withdrew the following amounts during the year 2017:
May 1 -                      4,000
August 1 -                10,000
September 30 -         4,000
January 31 -            12,000
March 31 -                 4,000

Interest on drawings is to be charged @ 7.5% p.a. Calculate the amount of interest to be charged on Harish's drawing for the year ending March 31, 2018.  

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

  1. Rs. 1,100

  2. Rs. 1,125

  3. Rs. 1,075

  4. Rs. 1,200

Show answer
Correct Option: C
Explanation:
Date             No. of months till     Workings                                                   Total
May 1                    11 months       4,000 x 11/12 x 7.5/12                               RS-275
August 1                8 months       10,000 x 8/12 x 7.5/12                             RS-500
September 30      6 months       4,000 x 6/12 x 7.5/12                              RS-150
January 31            2 months       12,000 x 2/12 x 7.5/12                             RS-150
March 31                    0                                 0                                                   0
Total interest                                                                                            = RS-1,075

Ram and Mohan, are partners. They Draw for private use Rs. 6,000 and Rs. 4000 respectively. Interest is chargeable @ 6% per annum on drawings. What is the interest?

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

  1. Ram Rs. 180 and Mohan Rs. 120

  2. Ram Rs. 360 and Mohan Rs. 240

  3. Ram Rs. 30 and Mohan Rs. 20

  4. None

Show answer
Correct Option: A
Explanation:
Interest on drawings = Amount x rate of interest x average period
 RAM:-
= 6,000 x 6/100 x 6/12
= RS-180
 MOHAN:-
= 4,000 x 6/100 x 6/12
= RS-120.

Note:-
Because nothing is mentioned hence, average period is taken as 6/12.