A and B partners with a capital of Rs. 40,000 and Rs. 20,000 respectively. They share profit and losses in proportion to their capitals after charging interest on capital @ 5% and a partners' salary of Rs. 30,000 p.a. to B. From 1.1.2018. A decided to retire from the firm's active work in the partnership and it is accordingly agreed that:
i. B shall in future be entitled to a partnership salary of Rs. 50,000 p.a.
ii. Interest to be allowed on capital @ 5% p.a.
iii. C, the manager of the firm, shall be introduced as a partner, without capital, as and from 1.1.2018, with a salary of Rs. 75,000 p.a. The excess of over Rs. 40,000 (his previous salary as manager) being chargeable against A.
iv. C shall be entitled to 1/10h of the profits after charging interest on capital and partnership salary.
v.The balance of the profit will be divided as 3/5th and 2/5th to A and B respectively.
The profit during the year 2018 was Rs. 250,000. Show Profit and Loss Appropriation Account and Partners' Capital Accounts under Fluctuating capital method. Assuming that the salaries have been drawn during the year. Drawings of the partners (excluding salaries) were A-Rs. 50,000, B-Rs. 30,000, and C-Rs. 10,000.
Answers
Answer:
PROFIT AND LOSS APPROPRIATION A/C
(for the year ended 31st March, 2018)
Dr. Cr.
Particulars Amount Particulars Amount
To Salary to C 12000 By Net Profit a/c 172000
To Interest on Capital a/c
- A
- B
- C
5000
5000
10000
To Profit transferred to:
- A's Current a/c
- B's Current a/c
- C's Current a/c
50000
44000
46000
172000 172000
JOURNAL
1. Interest on Capital a/c. Dr. 20000
To A's Current a/c 5000
To B's Current a/c 5000
To C's Current a/c 10000
(Being interest on capital transferred to the partner's current accounts)
2. Salary a/c.... Dr. 12000
To C's Current a/c 12000
(Being salary provided to C)
3. Profit and Loss Appropriation a/c.... Dr. 140000
To A's Current a/c 50000
To B's Current a/c 44000
To C's Current a/c 46000
(Being )
Working Note:
Distribution of Profit:
Profit available for distribution= 172000-12000-20000
= 140000
A's share= [20000*1/4] + [30000*5/10] + [90000*1/3]
= 5000+15000+30000
= 50000
B's share= [20000*1/4] + [30000*3/10] + [90000*1/3]
= 5000+9000+30000
= 44000
C's share= [20000*2/4] + [30000*2/10] + [90000*1/3]
= 10000+6000+30000
= 46000