Naveen, Qadir and Rajesh were partners doing an electronic goods business in Uttarakhand. After the accounts o

Question

Q. Naveen, Qadir and Rajesh were partners doing an electronic goods business in Uttarakhand. After the accounts of partnership were drawn up and closed, it was discovered that interest on capital has been allowed to partners @ 6% p.a. for the years ending 31st March, 2017 and 2018, although there is no provision for interest on capital in the partnership deed. On the other hand, Naveen and Qadir were entitled to a salary of ₹ 3,500 and ₹ 4,000 per quarter respectively, which has not been taken into consideration. Their fixed capitals were ₹ 4,00,000, ₹ 3,60,000 and ₹ 2,40,000 respectively. During the last two years they had shared the profits and losses as follows : Year Ended | Ratio 31st March, 2017 | 3 : 2 : 1 31st March, 2018 | 5 : 3 : 2 Pass necessary adjusting entry for the above adjustments in the books of the firm on 1st April, 2018. Show your workings clearly.

(OR)

On 31st March, 2018 the balance in the Capital Accounts of Abhir, Bobby and Vineet, after making adjustments for profits and drawings were ₹ 8,00,000, ₹ 6,00,000 and ₹ 4,00,000 respectively. Subsequently, it was discovered that interest on capital and interest on drawings had been omitted. The partners were entitled to interest on capital @ 10% p.a. and were to be charged interest on drawings @ 6% p.a. The drawings during the year were : Abhir - ₹ 20,000 drawn at the end of each month, Bobby - ₹ 50,000 drawn at the beginning of every half year and Vineet - ₹ 1,00,000 withdrawn on 31st October, 2017. The net profit for the year ended 31st March, 2018 was ₹ 1,50,000. The profit sharing ratio was 2 : 2 : 1. Pass necessary adjusting entry for the above adjustments in the books of the firm. Also, show your workings clearly.

CBSECBSE Class XII Board 2019Subjective· 6mImportance★★★★★

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Part (a)Concept understanding — Partnership Profit Distribution Rules

Partnership Capital Accounting — A First Look

Think of a partnership like a group of friends pooling money to start a roadside food stall. Each friend brings in some cash — that’s their capital. But unlike a simple piggy bank, a partnership needs a clear record of who put in how much, because profits (and losses) are shared in a fixed ratio, and partners may withdraw money, lend extra funds, or take a salary.

That record is what Partnership Capital Accounting is about.

What It Really Means

In accounting, capital is the amount a partner contributes to the firm. But it’s not just a one-time number. Over time, a partner’s capital changes due to:

Additional capital introduced
Drawings (money or goods taken out)
Share of profit or loss
Interest on capital, interest on drawings, partner’s salary, commission

The Capital Account of each partner tracks all these changes. It answers: What does the firm owe to this partner at any point?

Why It Matters

Without proper capital accounting, you cannot:

Determine each partner’s claim on the firm’s assets
Calculate interest on capital correctly
Prepare the Profit and Loss Appropriation Account
Settle accounts when a partner retires or dies

The NCERT textbook emphasises that capital accounts are personal accounts of the partners — they show the firm’s liability towards each partner.

Two Methods of Maintaining Capital Accounts

The NCERT Class 12 Accountancy textbook (Part II, Chapter 2) describes two methods:

1. Fixed Capital Method

Under this method, the capital account remains constant (except when additional capital is introduced or capital is withdrawn permanently). All other transactions — share of profit, drawings, interest, salary — are recorded in a separate Current Account.

Note

In the Fixed Capital Method, the Capital Account shows only the permanent capital. The Current Account shows the fluctuating balance.

2. Fluctuating Capital Method

Here, all transactions are recorded directly in the Capital Account. The capital balance changes every year.

Accounting Treatment — Which Account is Debited/Credited

Let’s take the most common entries. I’ll show the journal entry first, then explain.

Entry 1: Capital Introduced

When a partner brings in cash or assets:

Date	Particulars	L.F.	Debit (Rs)	Credit (Rs)
	Cash/Bank A/c	Dr.	xxx
	To Partner’s Capital A/c			xxx

Why? Cash comes in (asset increases — debit), and the firm’s liability to the partner increases (capital is a liability — credit).

Entry 2: Drawings

When a partner withdraws cash or goods for personal use:

Date	Particulars	L.F.	Debit (Rs)	Credit (Rs)
	Partner’s Capital/Current A/c	Dr.	xxx
	To Cash/Bank/Purchases A/c			xxx

Why? The firm’s liability to the partner decreases (debit the capital/current account), and cash or goods go out (credit).

Entry 3: Interest on Capital

This is an appropriation of profit. The formula (as per NCERT) is:

Interest on Capital = Capital × Rate of Time × Time (in months)/12

Journal entry:

Date	Particulars	L.F.	Debit (Rs)	Credit (Rs)
	Interest on Capital A/c	Dr.	xxx
	To Partner’s Capital/Current A/c			xxx

Then, at the end of the year, Interest on Capital is transferred to the Profit and Loss Appropriation Account:

Date	Particulars	L.F.	Debit (Rs)	Credit (Rs)
	Profit and Loss Appropriation A/c	Dr.	xxx
	To Interest on Capital A/c			xxx

Entry 4: Partner’s Salary

If the partnership deed allows a salary:

Date	Particulars	L.F.	Debit (Rs)	Credit (Rs)
	Salary to Partner A/c	Dr.	xxx
	To Partner’s Capital/Current A/c			xxx

Again, this is transferred to the Profit and Loss Appropriation Account.

Entry 5: Share of Profit

At the end of the year, after all appropriations, the remaining profit is distributed:

Date	Particulars	L.F.	Debit (Rs)	Credit (Rs)
	Profit and Loss Appropriation A/c	Dr.	xxx
	To Partner’s Capital/Current A/c			xxx

Formats as per NCERT

Format of Capital Account (Fluctuating Method)

Part (b)Concept understanding — Interest on Drawings

Interest on Drawings – A First Look

Think of a partnership firm as a shared pool of money. Each partner owns a part of that pool, but the firm needs that money to run its business. When a partner takes money out for personal use — buying a car, paying school fees, a holiday — that money is no longer available to the firm. The firm could have earned a return on that money if it had stayed in the business. So the partner is, in effect, borrowing from the firm.

Interest on Drawings is the charge the firm levies on a partner for that personal withdrawal. It compensates the firm for the loss of use of that capital.

The precise meaning

Drawings are any amounts or goods taken by a partner from the firm for personal use. Interest on Drawings is the interest charged by the firm on those drawings. It is an income for the firm and an expense for the partner.

The logic is simple: if the partner had left that money in the firm, the firm could have invested it and earned a return. By taking it out, the partner reduces the firm's capital base. Interest on Drawings restores some of that lost earning potential.

Why does it matter?

In a partnership, profits are shared according to an agreed ratio. But if one partner draws heavily and another draws little, the heavy drawer has effectively used more of the firm's resources. Without interest on drawings, that partner would unfairly benefit — the firm's profit would be lower because less capital was available, and all partners would share that reduced profit equally. Interest on drawings corrects this inequity.

It also encourages partners to withdraw only what they genuinely need, keeping more capital inside the firm for growth.

The accounting treatment

Interest on Drawings is recorded in two steps:

When interest is charged – The firm recognises it as income. The journal entry is:

Partner’s Capital Account (or Current Account) … Dr

To Interest on Drawings Account

The partner’s capital (or current) account is debited because the partner owes this amount to the firm. Interest on Drawings is credited because it is income for the firm.
At the end of the year – The Interest on Drawings Account is closed by transferring its balance to the Profit and Loss Appropriation Account:

Interest on Drawings Account … Dr

To Profit and Loss Appropriation Account

This increases the firm’s profit available for distribution.

Where does it appear in the final accounts?

Interest on Drawings appears in two places:

On the credit side of the Profit and Loss Appropriation Account – as an addition to the net profit.
On the debit side of the Partner’s Capital Account (or Current Account, if the firm maintains separate current accounts).

The NCERT textbook shows the following format for the Profit and Loss Appropriation Account:

Particulars	Amount (₹)	Particulars	Amount (₹)
To Net Profit (transferred)	xxx	By Net Profit (as per P&L)	xxx
To Interest on Capital	xxx	By Interest on Drawings	xxx
To Salary to Partner	xxx
To Commission to Partner	xxx
To Profit transferred to:
– A’s Capital A/c	xxx
– B’s Capital A/c	xxx
Total	xxx	Total	xxx

And in the Partner’s Capital Account (or Current Account), interest on drawings appears on the debit side:

Particulars	Amount (₹)	Particulars	Amount (₹)
To Interest on Drawings	xxx	By Balance b/d	xxx
To Drawings	xxx	By Interest on Capital	xxx

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Part (a)

Naveen, Qadir, Rajesh — reverse wrong interest on capital and provide omitted salaries, for two years with different ratios (2016-17 = 3:2:1; 2017-18 = 5:3:2).

Per year: Interest on capital @6% = Naveen 24,000, Qadir 21,600, Rajesh 14,400 (total 60,000). Salary/year = Naveen 14,000, Qadir 16,000 (total 30,000). Net rise in divisible profit each year = 60,000 − 30,000 = 30,000, shared in that year's ratio.

Partner	2016-17 net	2017-18 net	Total
Naveen	+5,000	+5,000	+10,000 Cr
Qadir	+4,400	+3,400	+7,800 Cr
Rajesh	−9,400	−8,400	−17,800 Dr

(each year: −IoC + Salary + share of 30,000 profit)

Adjusting Entry (1 April 2018)

Particulars	Dr (₹)	Cr (₹)
Rajesh's Capital A/c ..... Dr	17,800
To Naveen's Capital A/c		10,000

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Part (a): Rajesh's Capital A/c Dr ₹17,800; To Naveen ₹10,000, To Qadir ₹7,800.

Part (b): Bobby's Capital A/c Dr ₹18,660; To Abhir ₹13,240, To Vineet ₹5,420.

A single adjusting (past-adjustment) entry rectifies items wrongly allowed or omitted after the books are closed. Interest on capital is allowed only if the deed provides; salary must be provided if agreed. Because two years carry different profit-sharing ratios, each year is corrected separately in that year's ratio and the results are combined.

Part (a)

Working (per year): Interest wrongly allowed @6% = 24,000 + 21,600 + 14,400 = 60,000; salary due = 14,000 + 16,000 = 30,000. Reversing interest adds 60,000; providing salary deducts 30,000 ⇒ divisible profit rises 30,000 each year, shared in that year's ratio.

2016-17 (3:2:1): profit share 15,000/10,000/5,000. Net = (−IoC + salary + share): Naveen −24,000+14,000+15,000 = +5,000; Qadir −21,600+16,000+10,000 = +4,400; Rajesh −14,400+0+5,000 = −9,400.
2017-18 (5:3:2): profit share 15,000/9,000/6,000. Naveen +5,000; Qadir −21,600+16,000+9,000 = +3,400; Rajesh −14,400+0+6,000 = −8,400.
Combined: Naveen +10,000 (Cr), Qadir +7,800 (Cr), Rajesh −17,800 (Dr). …

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Same / Similar Concept — real previous-year questions on the same or a closely similar concept, not this exact question.

Showing the 12 most recent of 106 on this concept.

CBSE 2026Set 67/3/11 markMCQ
$Q. (a) Atul, Bajaj and Madan were partners in a firm sharing profits and losses in the ratio of 1 : 2 : 5. The partnership deed provides that interest on a partner's drawings shall be charged @ 18% per annum. During the year ended 31st March, 2025, Bajaj withdrew ₹ 7,000 at the end of each quarter. Interest on Bajaj's drawings will be : (A) ₹ 1,890 (B) ₹ 3,150 (C) ₹ 420 (D) ₹ 5,040$
(OR)
$(b) Damodar, Rao and Shridharan were partners in a firm sharing profits and losses in the ratio of 3 : 1 : 1. Their fixed capitals were ₹ 4,00,000; ₹ 3,00,000 and ₹ 2,00,000 respectively. Interest on capital is allowed at the rate of 6% per annum. Journal entry for allowing interest on Rao's capital will be : (A) Profit & Loss Appropriation A/c Dr. — Debit ₹ 18,000 | To Rao's Capital A/c — Credit ₹ 18,000 (B) Profit & Loss Appropriation A/c Dr. — Debit ₹ 18,000 | To Rao's Current A/c — Credit ₹ 18,000 (C) Interest on Capital A/c Dr. — Debit ₹ 18,000 | To Rao's Current A/c — Credit ₹ 18,000 (D) Interest on Capital A/c Dr. — Debit ₹ 18,000 | To Rao's Capital A/c — Credit ₹ 18,000$
›Reveal solutionSolution
Part (a): Interest on Bajaj's drawings = ₹1,890 (option A). Part (b): Interest on Rao's capital ₹18,000 debited to Interest on Capital A/c and credited to Rao's Current A/c (option C).

Part (a)

When a fixed amount is withdrawn at equal intervals, interest on drawings is found by the average period method.
$Interest on Drawings = Total Drawings \times Rate \times (Average Period \div 12)$
Working Note

Total drawings = 7,000 × 4 = ₹28,000.

Withdrawal at the end of each quarter: first drawing (30 Jun) has 9 months to run; last drawing (31 Mar) has 0 months. Average period = (9 + 0) ÷ 2 = 4.5 months. …
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CBSE 2026Set 67/3/11 markMCQ
$Q. Divya and Bholi were partners in a firm sharing profits and losses in the ratio of 3 : 1. On 1st April, 2024, their fixed capitals were ₹ 8,00,000 and ₹ 6,00,000 respectively. On 30th September, 2024, Bholi introduced ₹ 50,000 as additional capital. Partnership deed provided that interest on capital will be allowed @ 12% p.a. Interest on Bholi's capital for the year ended 31st March, 2025 was : (A) ₹ 78,000 (B) ₹ 75,000 (C) ₹ 72,000 (D) ₹ 3,000$
›Reveal solutionSolution
The interest on Bholi's capital for the year ended 31st March, 2025, is ₹75,000.

In a partnership firm, interest on capital is an allowance provided to partners for contributing capital to the business. It is typically calculated at a specified rate on the opening capital balance for the entire accounting period. However, if a partner introduces additional capital during the year, interest is calculated on this additional amount only for the period it remained in the business. This ensures fairness, as partners are compensated for the exact duration their capital was employed by the firm.

Interest on capital is considered an appropriation of profits, not a charge against profits. This means it is allowed only if there are sufficient profits; if profits are less than the total interest on capital, the interest is allowed only to the extent of profits, distributed in the ratio of capital. If there are losses, no interest on capital is allowed.

To calculate Bholi's interest on capital, we need to consider her initial capital and the additional capital introduced, along with the respective periods for which each amount was outstanding.

Solution

The interest on Bholi's capital for the year ended 31st March, 2025 is calculated as follows:

Interest on Initial Capital:

Bholi's initial fixed capital on 1st April, 2024, was ₹6,00,000. This capital remained in the business for the entire financial year (12 months).

Interest = ₹6,00,000 $\times$ 12% $\times$ (12/12) = ₹72,000

Interest on Additional Capital:

Bholi introduced additional capital of ₹50,000 on 30th September, 2024. This means the additional capital was available to the firm from 1st October, 2024, until the end of the financial year, 31st March, 2025. This period is 6 months (October, November, December, January, February, March).

Interest = ₹50,000 $\times$ 12% $\times$ (6/12) = ₹3,000

Total Interest on Bholi's Capital:

Total interest on Bholi's capital for the year is the sum of interest on her initial capital and interest on her additional capital.

Total Interest = ₹72,000 + ₹3,000 = ₹75,000 …
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CBSE 2026Set 67/4/11 markMCQ
$Q. (a) Reena and Teena were partners in a firm sharing profits and losses in the ratio of 2 : 1. Teena withdrew ₹ 20,000 at the beginning of each month during the year ended 31st March, 2025. Interest on drawings was to be charged @ 6% per annum. Interest on Teena's drawings for the year ended 31st March, 2025 will be : (A) ₹ 7,800 (B) ₹ 7,200 (C) ₹ 9,600 (D) ₹ 6,600$
(OR)
$(b) Rohan and Sohan were partners in a firm sharing profits and losses equally. Rohan withdrew ₹ 15,000 at the beginning of each quarter during the year ended 31st March, 2025. Interest on Rohan's drawings will be calculated for an average period of : (A) 6 months (B) 4½ months (C) 7½ months (D) 6½ months$
›Reveal solutionSolution
Part (a): Interest on Teena's drawings = Rs.7,800 -> (A). Part (b): Average period for beginning-of-quarter drawings = 7.5 months -> (C).

Part (a)

Equal amount at the beginning of every month => average period 6.5 months.

Total drawings = 20,000 x 12 = Rs.2,40,000 …
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CBSE 2026Set 67/4/11 markMCQ
$Q. Ankur and Angad were partners in a firm sharing profits and losses in the ratio of 8 : 7. On 1st July, 2024, Angad advanced a loan of ₹ 8,00,000 to the firm. There is no partnership deed. Angad demands interest on loan @ 10% p.a. On 31st March, 2025, the amount of interest on loan due to Angad will be : (A) ₹ 36,000 (B) ₹ 48,000 (C) ₹ 80,000 (D) ₹ 60,000$
›Reveal solutionSolution
When there is no partnership deed, interest on a partner's loan is allowed at 6% per annum as per the Indian Partnership Act, 1932. For Angad's loan of ₹8,00,000 for 9 months, the interest due is ₹36,000.

In partnership accounting, the absence of a partnership deed is a critical factor. When partners do not have a written agreement, or if the existing deed is silent on a particular matter, the provisions of the Indian Partnership Act, 1932, automatically apply. This Act serves as a default framework to ensure fairness and prevent disputes.

One of the key provisions of this Act, specifically Section 13(d), addresses interest on a partner's loan to the firm. It states that if a partner has advanced a loan to the firm, they are entitled to receive interest on that loan at a rate of 6% per annum. This is a statutory right and overrides any personal demands made by a partner, such as Angad's demand for 10% interest in this case.

Important

When there is no partnership deed, or the deed is silent, the Indian Partnership Act, 1932, applies. As per Section 13(d) of this Act, a partner is entitled to interest on a loan advanced to the firm at 6% per annum.

It is also crucial to understand that interest on a partner's loan is considered a charge against profits, not an appropriation of profits. This means it must be paid whether the firm makes a profit or incurs a loss. It is treated as an expense of the business, similar to interest paid on a loan from an external party, and is debited to the Profit & Loss Account.

Working Notes

Applicable Rate of Interest on Loan:

Since there is no partnership deed, the provisions of the Indian Partnership Act, 1932, apply. As per Section 13(d) of the Act, interest on a partner's loan is allowed at 6% per annum.

Watch out

Angad's demand for 10% p.a. interest is not applicable in the absence of a partnership deed explicitly stating this rate. The statutory rate of 6% p.a. must be followed.

Period for which Interest is Due:

Angad advanced the loan on 1st July, 2024. The accounting period ends on 31st March, 2025.

The period for which interest is due is from 1st July, 2024, to 31st March, 2025.

This duration covers July, August, September, October, November, December, January, February, and March.

Number of months = 9 months.

Calculation of Interest on Angad's Loan:

Loan Amount = ₹8,00,000

Rate of Interest = 6% p.a. (as per Indian Partnership Act, 1932)

Period = 9 months

Interest on Loan = Loan Amount $\times$ Rate $\times$ Period

Interest on Loan = ₹8,00,000 $\times \frac{6}{100} \times \frac{9}{12}$

Interest on Loan = ₹48,000 $\times \frac{9}{12}$

Interest on Loan = ₹4,000 $\times 9$

Interest on Loan = ₹36,000 …
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CBSE 2026Set 67/4/11 markMCQ
$Q. Anita and Priyal were partners in a firm sharing profits and losses in the ratio of 3 : 2. On 1st April, 2024, their capital accounts showed balances of ₹ 3,00,000 and ₹ 4,00,000 respectively. The partnership deed provided for interest on capital @ 8% p.a. The firm earned a profit of ₹ 28,000 for the year ended 31st March, 2025. Interest on capital allowed to Anita and Priyal was : (A) Anita ₹ 24,000, Priyal ₹ 32,000 (B) Anita ₹ 16,000, Priyal ₹ 12,000 (C) Anita ₹ 12,000, Priyal ₹ 16,000 (D) Anita ₹ 16,800, Priyal ₹ 11,200$
›Reveal solutionSolution
When the available profit is less than the total interest on capital due, the interest on capital is restricted to the available profit and distributed among partners in the ratio of their individual interest entitlements. For Anita and Priyal, the interest on capital allowed will be ₹12,000 and ₹16,000 respectively.

In partnership accounting, the treatment of interest on capital is a crucial concept, especially when the firm's profit is insufficient to cover the full amount of interest. Interest on capital is generally considered an appropriation of profit, not a charge against profit. This means it is paid only if there are profits, and only to the extent of available profits.

Here's the rule:

If the partnership deed provides for interest on capital, but it does not explicitly state that interest on capital is a charge against profits (meaning it must be paid even if it results in a loss), then it is treated as an appropriation. In such cases, if the total amount of interest on capital due to all partners exceeds the net profit available for appropriation, the interest on capital is restricted to the available profit. This available profit is then distributed among the partners in the ratio of their individual interest on capital entitlements.

Let's apply this concept to the given problem.

Working Notes

Calculation of Anita's full Interest on Capital:

Anita's Capital = ₹3,00,000

Interest Rate = 8% p.a.

Full Interest on Capital for Anita = ₹3,00,000 $\times$ 8/100 = ₹24,000

Calculation of Priyal's full Interest on Capital:

Priyal's Capital = ₹4,00,000

Interest Rate = 8% p.a.

Full Interest on Capital for Priyal = ₹4,00,000 $\times$ 8/100 = ₹32,000

Total full Interest on Capital:

Total full Interest on Capital = Anita's Interest + Priyal's Interest

Total full Interest on Capital = ₹24,000 + ₹32,000 = ₹56,000

Comparison with Available Profit:

Firm's Profit for the year = ₹28,000

Total full Interest on Capital = ₹56,000

Since the firm's profit (₹28,000) is less than the total full interest on capital (₹56,000), the interest on capital will be restricted to the available profit of ₹28,000.

Watch out

A common mistake is to simply pay the full interest on capital, which would result in a loss for the firm. Interest on capital is an appropriation, not a charge, unless the deed explicitly states otherwise. Therefore, it cannot exceed the available profit.

Ratio for distributing restricted Interest on Capital: …
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CBSE 2026Set 67/5/11 markMCQ
$Q. Arora and Gurmeet were partners in a firm sharing profits and losses in the ratio of 3 : 2. Starting from 1st October, 2024 Arora withdrew ₹ 30,000 at the beginning of each quarter for his personal use. Interest on drawings was to be charged @ 12% per annum. Interest on Arora’s drawings for the year ended 31st March, 2025 was : (A) ₹ 1,800 (B) ₹ 2,700 (C) ₹ 450 (D) ₹ 3,600$
›Reveal solutionSolution
Interest on Arora's drawings for the year ended 31st March, 2025 is ₹2,700 (Option B).

Concept: Interest on Drawings

When a partner withdraws money from the firm for personal use, the firm loses the opportunity to earn on that capital. To compensate, interest on drawings is charged to the partner's capital account and credited to the Profit & Loss Appropriation Account (it is an income for the firm).

The accounting treatment follows the rule:

Partner's Capital/Current A/c Dr. (reduces the partner's claim)

To Interest on Drawings A/c (or directly to P&L Appropriation A/c)

When drawings are made at regular intervals (monthly, quarterly, etc.), we use the average period formula to calculate interest, rather than computing interest on each withdrawal separately.

Understanding the Time Period

Arora withdraws ₹30,000 at the beginning of each quarter starting 1st October, 2024 until the year-end 31st March, 2025. This financial year runs for 6 months (October 2024 to March 2025).

The quarters in this period are:

1st October, 2024 – withdrawal for 6 months (Oct to Mar)

1st January, 2025 – withdrawal for 3 months (Jan to Mar)

So only two withdrawals occur during the year.

For equal periodic withdrawals, the average period formula is:
$\text{Average Period} = \frac{\text{Total time period} + \text{Time of last withdrawal}}{2}$
Here:

Total time period = 6 months (from first withdrawal on 1 Oct to year-end 31 Mar)

Time of last withdrawal = 3 months (from 1 Jan to 31 Mar)

$\text{Average Period} = \frac{6 + 3}{2} = \frac{9}{2} = 4.5 \text{ months}$
Tip

When drawings are made at the beginning of each period, the average period is calculated from the first withdrawal date to year-end, then averaged with the last withdrawal period. This accounts for the fact that early withdrawals remain outside the firm longer.

Solution

Working Note 1: Calculation of Interest on Drawings

Total drawings by Arora = ₹30,000 × 2 = ₹60,000

Interest on drawings:

$\text{Interest} = \text{Total Drawings} \times \frac{\text{Rate}}{100} \times \frac{\text{Average Period}}{12}$ …
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CBSE 2026Set 67/5/11 markMCQ
$Q. Munna and Sonu were partners in a firm sharing profits and losses in the ratio of 4 : 1. Their fixed capitals were ₹ 40,00,000 and ₹ 30,00,000 respectively. During the year ended 31st March, 2025, Munna withdrew ₹ 50,000 for personal use. Interest on drawings was to be charged @ 6% p.a. The journal entry for charging interest on Munna’s drawings will be : (A) Interest on Drawings A/c Dr. — Debit ₹ 1,500 | To Munna’s Capital A/c — Credit ₹ 1,500 (B) Munna’s Capital A/c Dr. — Debit ₹ 1,500 | To Interest on Drawings A/c — Credit ₹ 1,500 (C) Interest on Drawings A/c Dr. — Debit ₹ 1,500 | To Munna’s Current A/c — Credit ₹ 1,500 (D) Munna’s Current A/c Dr. — Debit ₹ 1,500 | To Interest on Drawings A/c — Credit ₹ 1,500$
›Reveal solutionSolution
Munna's Current A/c Dr. ₹1,500 | To Interest on Drawings A/c Cr. ₹1,500 — the correct entry is (D).

Concept: Interest on Drawings in a Partnership

When a partner withdraws money for personal use, the partnership charges interest on those drawings to compensate the firm for the loss of capital employed. This interest is an appropriation of profit (not a charge against profit like interest on a loan), meaning it reduces the partner's share of distributable profit.

Accounting Treatment

The entry for charging interest on drawings involves two steps conceptually, though in practice we often combine them:

Interest on Drawings Account is credited (it is an income to the firm, increasing the pool available for appropriation).

The partner's account is debited (the partner owes this amount to the firm; it reduces his claim).

Because the firm maintains fixed capital accounts (capitals are ₹40,00,000 and ₹30,00,000 and remain unchanged), all adjustments for interest, salary, drawings, and profit shares flow through the Current Accounts of the partners. The fixed capital method keeps the Capital Account static; the Current Account is the working account that absorbs all operational adjustments.

Thus the journal entry is:

Partner's Current A/c Dr.

To Interest on Drawings A/c

This debits the partner's Current Account (reducing his balance or increasing his debit balance) and credits Interest on Drawings, which will later be transferred to the Profit & Loss Appropriation Account on the credit side, increasing distributable profit.

Watch out

A common mistake is to debit "Interest on Drawings A/c" thinking it is an expense. Interest on drawings is not an expense; it is an appropriation item (a recovery from the partner). The Interest on Drawings Account is credited, not debited.

Solution

Working Note 1: Calculation of Interest on Drawings

Munna withdrew ₹50,000 during the year ended 31st March, 2025. The question does not specify the date(s) of withdrawal, so we apply the average period method: interest is calculated for an average period of 6 months (half the year).
$\text{Interest on Drawings} = \text{Drawings} \times \frac{\text{Rate}}{100} \times \frac{\text{Time (months)}}{12}$ $= 50{,}000 \times \frac{6}{100} \times \frac{6}{12} = 50{,}000 \times 0.06 \times 0.5 = ₹1{,}500$

Journal Entry for Charging Interest on Munna's Drawings

| Date | Particulars | L.F. | Debit (₹) | Credit (₹) | …
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CBSE 2026Set MARCH1 markMCQ
$Q. The capital proportion of A, B and C is 1:2:3 respectively. The divisible profit is ₹ 1,20,000. What will be the amount of profit of C?$
(a) 60,000
(b) 40,000
(c) 20,000
(d) 50,000
›Reveal solutionSolution

C's share of the 1,20,000 divisible profit in the 1 : 2 : 3 ratio is 60,000, so the answer is (a).

Total of the ratio = 1 + 2 + 3 = 6 parts.

Partner Ratio Share of 1,20,000
A 1/6 20,000
B 2/6 40,000

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CBSE 2026Set ANNUAL1 markMCQ
$Q. If Asha makes drawings of ₹ 4,000 at the end of each months and interest on drawings is charged @ 8% per annum. The period for interest on drawings will be A) 7 1/2 months B) 5 1/2 months C) 6 1/2 months D) 4 1/2 months$
›Reveal solutionSolution

For equal monthly drawings made at the END of each month, the average period for interest on drawings is 5 1/2 months, so option (B) is correct. This is a standard RBSE Rajasthan / Class-12 Accountancy interest-on-drawings question.

When a partner withdraws an equal amount at the end of every month for a full year, the first drawing stays invested (outstanding) for 11 months and the last drawing for 0 months. Using the average-period method:

Average period = (period of first drawing + period of last drawing) / 2 = (11 + 0) / 2 = 5.5 months

…

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CBSE 2026Set ANNUAL1 markMCQ
$Q. When time of withdrawals is not mentioned, interest on drawing is charged for$
(a) 5½ months
(b) 6 months
(c) 6½ months
(d) 12 months
›Reveal solutionSolution

If the time of drawings is not given, interest is charged for 6 months - option (b).

When the amounts and dates of a partner's drawings are not specified, it is assumed that the drawings were spread evenly over the whole year. The average period for which the money remained withdrawn is therefor …

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CBSE 2026Set ANNUAL1 markMCQ
$Q. Interest on capital in the absence of partnership deed :$
(a) 6%
(b) 10%
(c) 12%
(d) is not paid
›Reveal solutionSolution

Correct option: (d) is not paid.

When there is no partnership deed, the Indian Partnership Act, 1932 applies and it allows no interest on partners' capital. Interest on capital is payable only if the deed expressly provides fo …

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CBSE 2026Set ANNUAL1 markMCQ
$Q. A partner withdrew ₹ 10,000 each on 1st January and 1st July. Interest on his drawings @ 10% p.a on 31st December, 2024 will be _______.$
(a) ₹ 500
(b) ₹ 1000
(c) ₹ 1250
(d) ₹ 1500
(a) ₹ 500
(b) ₹ 1000
(c) ₹ 1250
(d) ₹ 1500
›Reveal solutionSolution

Interest on drawings = ₹ 1,500 (Option D).

Interest on drawings @10% p.a. is calculated separately on each withdrawal, from the date of withdrawal to the end of the accounting year (31st December, 2024):

Drawing Amount Period outstanding (to 31 Dec) Interest @10% p.a.
1st January ₹10,000 12 months ₹10,000 × 10% × 12/12 = ₹1,000

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Partner	Ratio	Share of 1,20,000
A	1/6	20,000
B	2/6	40,000

Part (a)

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