Question

Ali the Bahadur are partners in a firm sharing profits and losses as Ali 70% and Bahadur 30%. Their respective capitals as at 1st April, 2017 stand as Ali ₹ 25,000 and Bahadur ₹ 20,000. The partners are allowed interest on capitals @ 5% p.a. Drawings of the partners during the year ended 31st March, 2018 amounted to ₹ 3,500 and ₹ 2,500 respectively.
Profit for the year, before charging interest on capital and annual salary of Bahadur @ ₹ 3,000, amounted to ₹ 40,000, 10% of divisible profit is to be transferred to Reserve.
You are asked to show Partners' Current Account and Capital Accounts recording the above transactions.

Answer 1

Partners’ Capital Accounts
Dr.			Cr.
Particulars	Ali	Bahadur		Particulars	Ali	Bahadur
				Balance b/d	25,000	20,000
Balance c/d	25,000	20,000
	25,000	20,000			25,000	20,000

Partners’ Current Accounts
Dr.					Cr.
Particulars	Ali	Bahadur	Particulars	Ali	Bahadur
Drawings A/c	3,500	2,500	Interest on Capital A/c	1,250	1,000
			Bahadur’s Salary A/c		3,000
Balance c/d	19,642	10,883	P/L Appropriation A/c	21,892	9,383
	23,142	13,383		23,142	13,383

Working Notes:

WN 1

Profit and Loss Appropriation Account for the year ended March 31, 2018
Dr.					Cr.
Particulars			Amount Rs	Particulars	Amount Rs
Interest on Capital:				Profit and Loss A/c	40,000
Ali		1,250
Bahadur		1,000	2,250
Reserve			3,475
Bahadur’s Salary			3,000
Profit transferred to:
Ali’s Capital A/c	21,892
Bahadur’s Capital A/c	9,383		31,275
			40,000		40,000

WN 2 Calculation of Interest on Capital

WN 3 Calculation of Amount to be transferred to Reserve

$$\begin{gathered} \mathrm{Amount}\mathrm{transferred}\mathrm{to}\mathrm{Reserve}=10\%\mathrm{of}\mathrm{Divisible}\mathrm{Profits} \\ =10\%\times (40,000-2,250-3,000)=\mathrm{Rs}3,475 \end{gathered}$$

WN 4 Calculation of Profit Share of each Partner

Profit available for distribution = 40,000 − 2,250 − 3,000 − 3,475 = Rs 31,275

$$\begin{gathered} \mathrm{Ali}\text{'}\mathrm{s}\mathrm{Profit}\mathrm{Share}=31,275\times \frac{70}{100}=21,892 \\ \mathrm{Bahadur}\text{'}\mathrm{s}\mathrm{Profit}\mathrm{Share}=31,275\times \frac{30}{100}=9,383 \end{gathered}$$