Kavita and Pradeep are partners, sharing profits in the ratio of 3 : 2. They employed Chandan as their manager, to whom they paid a salary of Rs 750 p.m. Chandan deposited Rs 20,000 on which interest is payable @ 9% p.a. At the end of 2017 (after the division of profit), it was decided that Chandan should be treated as partner w.e.f. Jan. 1, 2014 with 1/6 th share in profits. His deposit being considered as capital carrying interest @ 6% p.a. like capital of other partners. Firm’s profits after allowing interest on capital were as follows: Rs 2014 Profit 59,000 2015 Profit 62,000 2016 Loss (4,000) 2017 Profit 78,000 Record the necessary journal entries to give effect to the above.
Answers
Record the necessary journal entries to give effect to the above.
Explanation:
Amount paid to Chandan as a manager
(i) Salary @ 750pm * 12 *4 = 36000
(ii) Interest on loan = 20000* 9/100 * 4 years (2014-2017) = 7200
Total amount payable as manager (i) + (ii) = 43200
Amount payable to Chandan as a partner
Share in profits = 59000+62000+78000-4000 = 195000
(+) Salary as manager = 36000
(+) Interest on deposit 20000 @ 3%** for 4 years = 2400
Total divisible profits = 233400
**9%-6% (his deposit being considered as capital carrying interest @ 6% p.a. However, he also receives interest when his deposit was considered as a loan @ 6%). therefore interest on loan minus interest on deposit = 3%
Chandan's share of profit 1/6 * 233400 = 38900
(+) Interest on capital for 4 years @ 6% = 20000 * 6/100 * 4 = 4800
Total amount payable as partner = 43700
Difference in Chandran's share = 43700-43200 = 500
(this is to be borne by kavita and pradip in 3:2 ratio)
Journal Entry
Kavitha Capital A/c.................Dr 300
Pradeep Capital A/c...............Dr 200
To Chandan Capital A/c ................................500
(Being deficiency money paid by Kavita & Pradeep to Chandan in the ration of 3:2)
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