Hinga and Becker are in a partnership. Their net profit for the year was Kshs 45,000. Interest on capital was Kshs 250 for Hinga and Kshs 375 for Becker. Hinga was also entitled to a salary of Kshs 5,000 per annum. If Becker is entitled to 2/5 of any residual profits, then her share of the profits for the year would be:
Answers
Answer:
Year 2016 2017 2018
Profit/Loss 4,00,000 (2,00,000) 6,00,000
Interest on Loan 30,000 30,000 30,000
as manager
Salary as manager 45,000 45,000 45,000
Profit before 4,75,000 (1,25,000) 6,75,000
loan and salary as manager
Less:-Interest on capital
@6% (18,000) Nil (18,000)
Less:-Salary as partner (35,000) Nil (35,000)
Adjusted Profit 4,22,000 (1,25,000) 6,22,000
Notes:- Interest on capital and salary to partners are not allowed in case of loss.
Total Adjusted Profit= (4,22,000+(1,25,000)+6,22,000)
= 9,19,000
C's Total Share as a partner
Share of profit(1/5*9,19,000) = 1,83,800
Interest on capital = 36,000
Salary = 70,000
Total = 2,89,800
C's share as manager
salary = 1,35,000
Interest = 90,000
Total = 2,25,000
Credit to C to be borne by A and B in the ratio of 3:2 is (2,89,800-2,25,000)= 64,800.
Journal entry is :
C's Loan A/c Dr. 3,00,000
To C's capital A/c 3,00,000
(Being C's loan converted to Capital)
A's capital A/c Dr. 38,800
B's capital A/c Dr. 25,920
To C's capital A/c 64,800
(Being credit given to C on conversion to partner)