Amit and Bhavna start a business on 1st April, 2019 and decide to share profits and losses in the ratio of 3: 2 respectively. They contribute in cash 1.50,000 and 1,20,000 respectively as their initial capitals on 1st April, 2019.
Their drawings during the year are: Amit = 18,000 and Bhavna = 15,750. Interest on capitals is allowed @ 12% p.a. and interest on drawings is to be charged @ 10% p.a.
Amit is to get a salary of 1,875 per month and Bhavna is entitled to get commission @ 2% on net sales which is 5,25,000. The net divisible profit is 1,45,500.
Prepare Partners' Capital Account for the year ended 31st March, 2019 under :
(i) Fixed Capital Method and (ii) Fluctuating Capital Method.
Answers
Answer:
1. Cash a/c... Dr. 13600
To C's Capital a/c 10000
To Premium for Goodwill a/c 3600
(Being capital and premium for goodwill brought in by C)
2. Premium for Goodwill a/c.. Dr. 3600
To A's Capital a/c 900
To B's Capital a/c 2700
(Being premium for goodwill brought in by C distributed among the partners in the ratio of 1:3)
3. Profit and Loss Appropriation a/c.. Dr. 24000
To A's Capital a/c 13000
To B's Capital a/c 7000
To C's Capital a/c 4000
(Being profit after C's admission distributed among the partners in the ratio of 13:7:4)
Working Note:
1. Calculation of sacrificing ratio:
A's sacrifice= 1/24
B's sacrifice= 1/8
Hence, Sacrificing ratio= 1:3
2. Distribution of premium for goodwill in sacrificing ratio:
A's share= 3600 * 1/4= 900
B's share= 3600 * 3/4= 2700
3. Calculation of new Profit sharing ratio:
A's new share= 7/12- 1/24= 13/24
B's new share= 5/12- 1/8= 7/24
C's share= 1/4
New profit sharing ratio= 13:7:4
4. Distribution of profit in new profit sharing ratio:
A's share= 24000 * 13/24= 13000
B's share= 24000 * 7/24= 7000
C's share= 24000 * 4/24= 4000