Question

• Illustration 50 (Manager to be Treated as a Partner). A and B are partners sharing profits
year's profit), they decided to take Cinto partnership with effect from 1st April, 2015. As Cw
losses in the ratio of 3:2. At the end of the year, i.e., on 31st March, 2018, (after division of the
which he is getting interest @ 10% p.a. During the three financial years, firm's profits after
According to the new agreement, C is to be given annual salary of * 35,000 and 1/5th share in
the profits of the firm. C's loan shall be treated as his capital from the beginning and similart
Step 2. Compute the amount which should be allowed to the Manager on
getting annual salary of 45,000, he had also advanced 3,00,000 to the firm by way of a loan
adjusting salary to C, interest on loan and interest on the capital of the partners were:​

Answer 1

Answer:

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Answer 2

Answer:

theYear 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)

Explanation:

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