Question

Kavitha 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 pm. Chandan deposited Rs 20,000 on which interest is payable @ 9% pa. At the end of 2001 (after the division of profit), it was decided that Chandan should be treated as partner w.e.f. Jan 1, 1998 with $\frac{1}{6}th$ share in profits. His deposit being considered as capital carrying interest @ 6% pa like capital of other partners. Firm's profits after allowing interest on capital were as follows

(Rs)

2001 Profit 59,000

2002 Profit 62,000

2003 Loss (4,000)

2004 Profit 78,000

Record the necessary journal entries to give effect to the above.

Answer 1

Amount Paid to Chandan as Manager

(i) Salary @ 750 pm $\times 12\times 4$ = 36,000

(ii) Interest on Loan $=20,000\times \frac{9}{100}\times 4$ = 7,200

Total amount payable as manager $\underset{–}{\overline{43,200}}$

Amount Payable to Chandan as Partner

Share in profits

Total profit of firm = 59,000 + 62,000 + 78,000 - 4,000 = 1,95,000

(+) Salary as Manager = 36,000

(+) 9% - 6% = 3%

Interest on deposit Rs 20,000 for years = 2,400

Total divisible profit = $\overline{\underset{–}{2,33,400}}$

Chandan's share of profit $=2,33,400\times \frac{1}{6}=38,900$

(+) Interest on capital for 4 years @ 6%

$20,000\times \frac{6}{100}\times 4=4,800$

Total amount payable as partner $\overline{\underset{–}{43,700}}$

Difference in Chandan's share = 43,700 - 43,200= 500

(to be borne by kavita and pradeep in 3:2 ratio)

$\begin{array}{ccccccc}\text{Date}& \text{Particulars}& & \text{LF}& \text{Amt. (Dr)}& & \text{Amt. (Cr)}\\ & \text{Kavita's Capital A/c}& \text{Dr}& & 300& & \\ & \text{Pradeep's Capital A/c}& \text{Dr}& & 200& & \\ & \text{To Chandan's Capital A/c}& & & & & 500\\ & \text{(Being deficiency money paid to Chandan by}& & & & & \\ & \text{Kavita and Pradeep)}& & & & & \end{array}$