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Question

A, B and C are in partnership. On 1st April, 2015 their capitals were : A Rs 5,00,000 (Credit), B Rs 3,00,000 (Credit) and C Rs 40,000 (Debit). As per partnership deed Interest on Capital is to be allowed at 6% p.a. and Interest on drawings is to be charged at 8% p.a.

You find that :

(i) On 1st July 2015, A withdrew Rs 1,00,000 against capital;

(ii) B withdrew Rs 5,000 p.m. during the year.

(iii) C withdrew Rs 60,000 during the year.

The profit for the year ended 31st March, 2016 amounted to Rs 3,84,000.

You are required to prepare journal entries for the above transactions and also prepare partner's capital accounts.

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Solution

JOURNAL

DateParticularsL.F.Dr. (Rs)Cr. (Rs)2015July 1A's Capital A/c Dr.1,00,000 To Bank A/c1,00,000(Withdrawal by A out of Capital) ––––––––––––––––––––––––––––––––––––––––––––––2016March 31Profit and Loss A/c Dr.3,84,000 To Profit and Loss Appropriation A/c3,84,000(The transfer of profit to Profit and LossAppropriation A/c) ––––––––––––––––––––––––––––––––––––––––––––––March 31Interest on Capital A/c Dr43,500 To A's Capital A/c25,500 To B's Capital A/c18,000(Interest on partner's capitals) ––––––––––––––––––––––––––––––––––––––––––––––March 31Profit and Loss Appropriation A/c Dr.43,500 To Interest on Capital A/c43,500(Transfer of interest on Capital to Profit andLoss App. A/c) ––––––––––––––––––––––––––––––––––––––––––––––March 31B's Capital A/c Dr.2,400C's Capital A/c Dr.2,400 To Interest on Drawings A/c4,800(Interest on partner's drawings) ––––––––––––––––––––––––––––––––––––––––––––––March 31Interest on Drawings A/c Dr.4,800 To Profit and Loss Appropriation A/c4,800(Transfer of interest on drawings to Profitand Loss App. A/c) ––––––––––––––––––––––––––––––––––––––––––––––March 31Profit and Loss Appropriation A/c Dr.3,45,300 To A's Capital A/c1,15,100 To B's Capital A/c1,15,100 To C's Capital A/c1,15,100(Transfer of profit to capital account)

Dr. PARTNER'S CAPITAL ACCOUNTS Cr.

DateParticularsABCDateParticularsABC2015RsRsRs2015RsRsRsApril 1Bal.April 1Bal.b/d40,0002016b/d5,00,0003,00,000July 1BankMar.31Int. onA/c1,00,000on capital A/c25,50018,0002016"P & LMar.31DrawingsApp A/c1,15,1001,15,1001,15,100A/c60,00060,000"Interest onDrawings A/c2,4002,400"Bal.c/d5,40,6003,70,70012,700¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯6,40,600––––––––¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯4,33,100––––––––¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯1,15,100––––––––¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯6,40,600––––––––¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯4,33,100––––––––¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯¯1,15,100––––––––

Working Notes:

(1)Interest on A's Capital:RsOn Rs 5,00,000 for 3 months:5,00,000×6100×312=7,500On Rs 4,00,000 for 9 months:4,00,000×6100×912=18,000––––––25,500––––––(2)Interest on drawings:B's Drawings: Rs5,000×12=Rs 60,000×8100×612=2,400––––C's Drawings:Rs 60,000×8100×612=2,400––––

Note: In the absence of actual dates of drawings, interest thereon has been calculated for the average period i.e., 6 months.

(3) Divisible Profit =Rs 3,84,000 - Interest on Capital Rs 43,500 + Interest on Drawings Rs 4,800 = Rs 3,45,300

Each Partner's share =Rs 3,45,300/3 = Rs 1,15,100.


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