A,B, and C are partners in a firm. According to the Partnership Deed, the partners are entitled to draw Rs.7,000 per month. On the 1st day of every month A,B and C drew Rs.7,000;Rs.6,000 and Rs.5,000 respectively. Interest on capitals and interest on drawings are fixed @ 8% and 10% respectively. Profit for the year ended 31st March, 2018 was Rs.7,55,000 out of which Rs.2,00,000 are to be transferred to General Reserve. B and C are entitled to receive salary of Rs.30,000 and Rs.45,000 p.a. respectively and A is entitled to receive commission @ 10% on net distributable profits after charging such commission. On 1st April, 2017, the balances of their Capital Accounts were Rs.5,00,000;Rs.4,00,000 and Rs.3,50,000 respectively. Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2018 and Capital Accounts of Partners in the books of the firm.
Answers
Answer:
It is assumed that the given amount of capital is thought to be closing balance of the capital and therefore includes the profit already distributed at the end of the year. In this case, the alternative solution will be as under:
Adjustment of Capitals
A (Rs)
B (Rs)
C (Rs)
Capital at the end of the year
30
,
000
20
,
000
10
,
000
Less : Profit distributed (3 : 2 : 1)
15
,
000
10
,
000
5
,
000
Capital at the beginning of the year
15
,
000
10
,
000
5
,
000
Interest on Capital
@
5
%
750
500
250
STATEMENT SHOWING ADJUSTMENT TO BE MADE
Particulars
A (Rs)
B (Rs)
C (Rs)
Total (Rs)
Profit already credited (3 : 2 : 1) (Dr.)
15
,
000
10
,
000
5
,
000
30
,
000
Interest on Capital to be credited (Cr.)
750
500
250
1
,
500
14
,
250
9
,
500
4
,
750
28
,
500
Commission to C to be credited
@
5
%
o
f
Rs.
28
,
500
(Cr.)
–––
–––
1
,
425
1
,
425
14
,
250
9
,
500
3
,
325
27
,
075
Salary to B to be credited (Cr.)
–––
6
,
000
–––
6
,
000
14
,
250
3
,
500
3
,
325
21
,
075
Remaining profit to be credited (2 : 2 : 1) (Cr.)
8
,
430
8
,
430
4
,
215
21
,
075
5
,
820
4
,
930
890
–––
(Dr.)
(Cr.)
(Cr.)
ADJUSTMENT ENTRY
Date
Particulars
L.F.
Debit
Credit
(Rs)
(Rs)
A's Capital A/c
Dr
5
,
820
To B's Capital A/c
4
,
930
To C's Capital A/c
890
(Being adjustment entry passed)