CIE Accounting Paper-2: Specimen Questions with Answers 38 - 39 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: 38 (3 of 5 Based on Passage) Show Passage

Write in Short

Describe the maintenance of fixed capital accounts?

Explanation

Under the fixed capital method, two accounts for each partner are maintained. One is called as the capital account of the partner, which remains fixed throughout the period.

‎Only additional capital brought in by the partner will find place in this account All other adjustments such as drawings, interest on drawings, interest on capital, Salary withdrawn, commission received, Share in the profit or loss of the firm are considered in the second account called as the “Current account “of the partner. As the partner’s capital tends to remain fixed, it gets the name of fixed capital.

Question number: 39 (4 of 5 Based on Passage) Show Passage

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.

 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