Question

X and Y are partners sharing profits and losses in the ratio of 3 : 2. They employed Z as their Manager to whom they paid a salary of ₹ 7,500 per month. Z had deposited ₹ 2,00,000 on which interest was payable ₹ 9% p.a. At the end off the accounting year (i.e., 31st March, 2018) 2017-18 (after division of the year’s profits), it was decided that Z should be treated as a partner with effect from 1st April, 2014 with 1/6th share of profits, his deposit being considered as capital carrying interest @ 6% p.a. like capitals of other partners. The firm’s profits and losses after allowing interest on capitals were 2014-15:
Profit ₹ 5,90,000; 2015-16: Profit ₹ 6,26,000; 2016-17: Loss ₹ 40,000 and 2017-18: Profit ₹ 7,80,000.
Record necessary Journal entries to give effect to the above.

Answer 1

Solution:

                                                       Journal  

Particulars                                                    L.F.      Debit Rs.    Credit Rs.

Z's Loan A/c                                           Dr.             2,00.000

    To Z's Capital A/c                                                                  2.00,000 (Being Z's Loan transferred to his Capital Account) ,

X's Capital A/c                                        Dr.              3,600

Y's Capital, A/c                                       Dr.              2,400

To Z's Capital A/c                                                                           6,000

(Being Z's excess credit balance paid to him by X and Y in the ratio of 3 : 2)  

Working Notes :  

1.Profit before Es Salary and Interest on Loan  

Profit before Z's Salary and Interest on Loan

Year          Profit/Loss  +  Salary  +  Interest on  Profit before Interes

                                                           z's loan          Interest on

                                                                              Z's Capital (for 4 years)  

2012 - 2013    5,90,000 + 90,000 +  18,000 =        6.98,000

2013 - 2014     6,26,000 + 90,000 + 18,000 =         7,34,000

2014 - 2015      (40,000) + 90,000  + 18,000 =          68,000

2015 - 2016     7,80,000 +  90,000 + 18,000          = 8,88,000

Profit before Interest on Z's Capital (for 4 years)  

2. Calculation of Interest on Capital  

Interest on Z's Capital = 2,00,000 x $\frac{6}{100}$  =12,000 p.a.  

Interest on Z's Capital for 4 years =12,003 x 4= 48,000

3. Calculation of Z's Share of Profit as a Partner

Profit after Interest on Z's Capital = Profit before Interest on Es Capital - Interest on Es Capital

= Rs.23,88,000 -Rs.48,000

= Rs.23,40,000

Z's Profit Share as a Partner for 4 years 1=23,40,000 x $\frac{1}{6}$  =3,90,000

∴ Zs Share of Interest on Capital and Profit Share as a Partner

= Rs.48,000 + Rs.3,90,000

= Rs.4,38,000

Zs Salary and Interest on Loan as Manager = Rs.72,000 + Rs.3,60,000                  

                                                                        = Rs.4,32,000  

                                       Adjusting Table  

Z's Share as a Partner                                                               4,38,000  

Less : Es Share as a Manager                                                  (4,32,000)  

Z will get from X and Y in their profit sharing ratio                   6,000  

Profit to be transferred by X and Yin Favour of Z

X =6,000 x $\frac{3}{5}$ =3,600

Y=6,000 x $\frac{2}{5}$ = 2400