CIE Accounting Paper-2: Specimen Questions with Answers 36 - 37 of 103

Passage

King and Queen commenced business as partners on April 1st 2006. King contributed £80000 and Queen contributed £50000 as capital. Their profit sharing ratio was decided as 2: 1. During the year King withdrew £8000 and Queen withdrew £16000. King was also entitled for salary amounting to £12000. Interest on capital was paid@6%. The profit of the firm after providing for salary and interest on capital was £24000.

Question number: 36 (1 of 5 Based on Passage) Show Passage

Short Answer Question▾

Write in Short

Describe the maintenance of fluctuating capital accounts?

Explanation

Under the fluctuating capital method, only one account called as the capital account of the partner is maintained. All adjustments such as drawings, interest on drawings, additional capital introduced, interest on capital, Salary withdrawn, commission received, Share in the profit or loss of the firm are considered. Due to these adjustments the partner’s capital keeps fluctuating, and hence it gets the name of fluctuating capital account.

Question number: 37 (2 of 5 Based on Passage) Show Passage

Short Answer Question▾

Write in Short

What will be the capital of King and Queen on 31st March 2007, if fluctuating capital accounts were maintained by the firm?

Explanation

On 31st March 2007, capital of King is £104800 and capital of Queen is £45000 when the firm maintains fluctuating capital accounts.

Fluctuating Capital Accounts of King and Queen as on March 31st 2007

Table of Fluctuating Capital Accounts of King and Queen as on March 31st 2007

DATE

PARTICULARS

JF

KING

QUEEN

DATE

PARTICULARS

JF

KING

QUEEN

Drawings

8000

16000

Cash

80000

50000

Balance C/F

104800

45000

Salary

12000

Interest on capital@6%

4800

3000

Profit & Loss appropriation in the ratio 2: 1

16000

8000

112800

61000

112800

61000

Profit = King = 24000 * 2/3 = 16000

Profit = Queen = 24000 * 1/3 = 8000