# CIE Accounting Paper-2: Specimen Questions with Answers 38 - 40 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

What is meant by capital Account in a partnership firm?

### Explanation

In a partnership firm, the term capital refers to the amount of cash contributed by each partner, for the establishment of the partnership firm. Partner’s capital Accounts are prepared during the year to find out the exact contribution made by each partner towards the firm. The capital accounts can either be fixed or fluctuating in nature depending upon the partnership agreement.

## Question number: 39 (4 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find place in this account All other adjustments such as drawings, interest on drawings, interest on capital, Salary withdrawn, commission received, Share in the profit or loss of the firm are considered in the second account called as the “Current account “of the partner.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: 40 (5 of 5 Based on Passage) Show Passage

### Write in Short

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

### Explanation

On 31st March 2007, capital of King is £80000 and capital of Queen is £50000 when the firm maintains fixed capital accounts.

CURRENT ACCOUNT OF KING AND QUEEN

 DATE PARTICULARS JF KING QUEEN DATE PARTICULARS JF KING QUEEN Drawings 8000 16000 Salary 12000 Balance C/F 24800 Interest on capital@6% 4800 3000 Profit & Loss appropriation in the ratio 2: 1 16000 8000 Balance C/F 5000 32800 16000 32800 16000

FIXED ACCOUNT OF KING AND QUEEN

 DATE PARTICULARS JF KING QUEEN DATE PARTICULARS JF KING QUEEN Balance C/F 80000 50000 Cash 80000 50000 80000 50000 80000 50000