Question

Ali the Bahadur are partners in a firm sharing profits and losses as Ali 70% and Bahadur 30%. Their respective capitals as at 1st April, 2017 stand as Ali ₹ 25,000 and Bahadur ₹ 20,000. The partners are allowed interest on capitals @ 5% p.a. Drawings of the partners during the year ended 31st March, 2018 amounted to ₹ 3,500 and ₹ 2,500 respectively. Profit for the year, before charging interest on capital and annual salary of Bahadur @ ₹ 3,000, amounted to ₹ 40,000, 10% of divisible profit is to be transferred to Reserve. You are asked to show Partners Current Account and Capital Accounts recording the above transactions.

Answer 1

Explanation:

Working Notes:

1. Calculation of Interest on Capital

Interest on Ali's Capital  = $25,000 \times \frac{5}{100}=1,250$

Interest on Bahadur's Capital  = $20,000 \times \frac{5}{100}=1,000$

2. Calculation of Amount to be transferred to Reserve

Amount for Reserve = $10 \% Divisible Profit$

$=(40,000-2,250-3,000) \times \frac{10}{100}=3,475$

3. Calculation of share of profit of each partner

Profit available for distribution  = $\mathrm{Rs} .40,000-\mathrm{Rs} .2,250-\mathrm{Rs} .3,475-\mathrm{Rs} .3,000$

$=\mathrm{Rs} .31,275$

Ali's Profit Share $=31,275 \times \frac{70}{100}=21,892$

Bahadur Profit Share $=31,275 \times \frac{30}{100}=9,383$

Answer 2

Answer:

Explanation:

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