Question

Harshad and Dhiman are in partnership since 1st April, 2017. No partnership agreement was made. They contributed Rs 4,00,000 and 1,00,000 respectively as capital. In addition, Harshad advance an amount of Rs 1,00,000 to the firm on 1st October, 2017. Due to long illness, Harshad could not participate in business activities from 1st August to 30th September, 2017. The profit for the year ended 31st March, 2018 amounted to Rs 1,80,000. Dispute has arisen between Harshad and Dhiman.
Harshad Claims:
(i) He should be given interest @ 10% per annum on capital and loan;
(ii) Profit should be distributed in proportion of capital;
Dhiman Claims:
(i) Profit should be distributed equally;
(ii) He should be allowed Rs 2,000 p.m. as remuneration for the period he managed the business in the absence of Harshad;
(iii) Interest on Capital and loan should be allowed @ 6% p.a.
You are required to settle the dispute between Harshand and Dhiman. Also prepare Profit and Loss Appropriation Account.

Answer 1

The dispute can be settled in the following way.

Harshad Claims:

(i) He should be given interest @ 10% per annum on capital and loan;

There was no agreement made among Harshad and Dhiman. Harshad’s claim of interest rate of 10% is incorrect as according to Partnership Act 1932, interest on capital is not allowed and is allowed on loan only at rate of 6% per annum.

(ii) Profit should be distributed in proportion of capital;

Also, as there is no agreement, profit is to be distributed equally.

Dhiman Claims:

(i) Profit should be distributed equally;

Dhiman’s demand of equal distribution of profit is acceptable according to Partnership Act.

(ii) He should be allowed Rs 2,000 p.m. as remuneration for the period he managed the business in the absence of Harshad;

But he is not entitled for any renumeration for looking into the business alone for a long time.

(iii) Interest on Capital and loan should be allowed @ 6% p.a.

Also, interest on loan is allowed only at 6% per annum.  

Distribution of Profits will be as follows:

Profit and Loss Adjustment Account

Interest on Harshad’s Loan Account:

Interest

                $= Rs 1,00,000 \times \frac {6}{12} \times \frac {6}{100} \\\\= Rs. 3,000$

Thus, the interest will be Rs. 3000.

Profit

                $= Rs. 1,80,000 (1,77,000 + 3,000)$

This is “Profit and Loss Adjustment Account”.

Profit and Loss Appropriation Amount

“Profit and Loss Appropriation Amount” will be 1,77,000 divided equally as 88,500 between Harshad and Dhiman equally.

Answer 2

Answer:

Decisions according to partnership Act,1932, if there is no agreement . Decission on Harshads Claim (i) Interest on partners capital will not be allowed to partners (ii) Profits shall be distributed equally among all the partners Decission on Dhimans Claim (i) Profits should be distributed equally among all the partners, (ii) No salary shall be allowed to any partner if there is no agreement regarding remuneration. (iii) Interest shall be allowed on partner’s Loan @ 6% pa whereas no interest is allowed on capital.