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.

Answer 1

JOURNAL

$\begin{array}{ccccc}\text{Date}& \text{Particulars}& L.F.& \text{Dr. (Rs)}& \text{Cr. (Rs)}\\ 2015& & & & \\ \text{July 1}& \text{A's Capital A/c}Dr.& & 1,00,000& \\ & \text{To Bank A/c}& & & 1,00,000\\ & \text{(Withdrawal by A out of Capital)}& & & \\ & \underset{–}{}& & & \\ 2016& & & & \\ \text{March 31}& \text{Profit and Loss A/c}Dr.& & 3,84,000& \\ & \text{To Profit and Loss Appropriation A/c}& & & 3,84,000\\ & \text{(The transfer of profit to Profit and Loss}& & & \\ & \text{Appropriation A/c)}& & & \\ & \underset{–}{}& & & \\ \text{March 31}& \text{Interest on Capital A/c}Dr& & 43,500& \\ & \text{To A's Capital A/c}& & & 25,500\\ & \text{To B's Capital A/c}& & & 18,000\\ & \text{(Interest on partner's capitals)}& & & \\ & \underset{–}{}& & & \\ \text{March 31}& \text{Profit and Loss Appropriation A/c}Dr.& & 43,500& \\ & \text{To Interest on Capital A/c}& & & 43,500\\ & \text{(Transfer of interest on Capital to Profit and}& & & \\ & \text{Loss App. A/c)}& & & \\ & \underset{–}{}& & & \\ \text{March 31}& \text{B's Capital A/c}Dr.& & 2,400& \\ & \text{C's Capital A/c}Dr.& & 2,400& \\ & \text{To Interest on Drawings A/c}& & & 4,800\\ & \text{(Interest on partner's drawings)}& & & \\ & \underset{–}{}& & & \\ \text{March 31}& \text{Interest on Drawings A/c}Dr.& & 4,800& \\ & \text{To Profit and Loss Appropriation A/c}& & & 4,800\\ & \text{(Transfer of interest on drawings to Profit}& & & \\ & \text{and Loss App. A/c)}& & & \\ & \underset{–}{}& & & \\ \text{March 31}& \text{Profit and Loss Appropriation A/c}Dr.& & 3,45,300& \\ & \text{To A's Capital A/c}& & & 1,15,100\\ & \text{To B's Capital A/c}& & & 1,15,100\\ & \text{To C's Capital A/c}& & & 1,15,100\\ & \text{(Transfer of profit to capital account)}& & & \end{array}$

Dr. PARTNER'S CAPITAL ACCOUNTS Cr.

$\begin{array}{cccccccccc}\text{Date}& \text{Particulars}& A& B& C& \text{Date}& \text{Particulars}& A& B& C\\ 2015& & Rs& Rs& Rs& 2015& & Rs& Rs& Rs\\ \text{April 1}& \text{Bal.}& & & & \text{April 1}& \text{Bal.}& & & \\ & b/d& & & 40,000& 2016& b/d& 5,00,000& 3,00,000& \\ \text{July 1}& \text{Bank}& & & & \text{Mar.31}& \text{Int. on}& & & \\ & A/c& 1,00,000& & & & \text{on capital A/c}& 25,500& 18,000& \\ & & & & & & & & & \\ 2016& & & & & "& \text{P \& L}& & & \\ \text{Mar.31}& \text{Drawings}& & & & & \text{App A/c}& 1,15,100& 1,15,100& 1,15,100\\ & A/c& & 60,000& 60,000& & & & & \\ "& \text{Interest on}& & & & & & & & \\ & \text{Drawings A/c}& & 2,400& 2,400& & & & & \\ "& \text{Bal.}& & & & & & & & \\ & c/d& 5,40,600& 3,70,700& 12,700& & & & & \\ & & \underset{–}{\overline{6,40,600}}& \underset{–}{\overline{4,33,100}}& \underset{–}{\overline{1,15,100}}& & & \underset{–}{\overline{6,40,600}}& \underset{–}{\overline{4,33,100}}& \underset{–}{\overline{1,15,100}}\end{array}$

Working Notes:

$\begin{array}{ccccc}\left(1\right)& \text{Interest on A's Capital:}& & & Rs\\ & \text{On Rs 5,00,000 for 3 months}:& 5,00,000\times \frac{6}{100}\times \frac{3}{12}& =& 7,500\\ & \text{On Rs 4,00,000 for 9 months:}& 4,00,000\times \frac{6}{100}\times \frac{9}{12}& =& \underset{–}{18,000}\\ & & & & \underset{–}{25,500}\\ \left(2\right)& \text{Interest on drawings:}& & & \\ & \text{B's Drawings: Rs}5,000\times 12=& Rs60,000\times \frac{8}{100}\times \frac{6}{12}& =& \underset{–}{2,400}\\ & \text{C's Drawings:}& Rs60,000\times \frac{8}{100}\times \frac{6}{12}& =& \underset{–}{2,400}\end{array}$

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.