Question

Triphati and Chauhan are partners in a firm sharing profits and losses in the ratio of 3:2. Their capitals were Rs 60,000 and Rs 40,000 as on January 01, 2015. During the year they earned a profit of Rs 30,000. According to the partnership deed both the partners are entitled to Rs 1,000 per month as Salary and 5% interest on their capital. They are also to be charged an interest of 5% on their drawings, irrespective of the period, which is Rs 12,000 for Tripathi, Rs 8,000 for Chauhan. Prepare Partner’s Accounts when, capitals are fixed.

Answer 1

a) If interest on Capital and Partners’ salaries and interest on drawings is charged against profit, the solution will be as:

Profit and Loss Appropriation Account
Dr.					Cr.
Particulars		Amount Rs	Particulars		Amount Rs
Profit transferred to			Profit and Loss		30,000
Triphati’s Current Account		18,000
Chauhan’s Current Account		12,000
		30,000			30,000

Partners’ Capital Account
Dr.					Cr.
Particulars	Tripathi	Chauhan	Particulars	Tripathi	Chauhan
			Balance b/d	60,000	40,000
Balance c/d	60,000	40,000
	60,000	40,000		60,000	40,000

Partners’ Current Account
Dr.					Cr.
Particulars	Tripathi	Chauhan	Particulars	Tripathi	Chauhan
Drawings	12,000	8,000	Interest on Capital	3,000	2,000
Interest on Drawings	600	400	Partners’ Salaries	12,000	12,000
Balance c/d	20,400	17,600	Profit & Loss Appropriation	18,000	12,000
	33,000	26,000		33,000	26,000

b) ) If interest on Capital and Partners’ salaries and interest on drawings is distributed out of profit, the solution will be as:

Profit and Loss Appropriation Account
Dr.					Cr.
Particulars		Amount Rs	Particulars		Amount Rs
Partners’ Salary			Profit and Loss (Profit)		30,000
Tripathi 1,000 × 12 =	12,000		Interest on Drawings
Chauhan 1,000 × 12 =	12,000	24,000	Tripathi	600
			Chauhan	400	1,000
Interest on Capital
Tripathi	3,000
Chauhan	2,000	5,000
Profit Transferred to
Tripathi’s Current	1,200
Chauhan’s Current	800	2,000
		31,000			31,000

Partners’ Capital Account
Dr.					Cr.
Particulars	Tripathi	Chauhan	Particulars	Tripathi	Chauhan
			Balance b/d	60,000	40,000
Balance c/d	60,000	40,000
	60,000	40,000		60,000	40,000

Partners’ Current Account
Dr.					Cr.
Particulars	Tripathi	Chauhan	Particulars	Tripathi	Chauhan
Drawings	12,000	8,000	Partners’ Salaries	12,000	12,000
Interest on Drawings	600	400	Interest on Capital	3,000	2,000
Balance c/d	3,600	6,400	Profit and Loss Appropriation	1,200	800
	16,200	14,800		16,200	14,800

As the question is silent about the treatment of Interest on Capitals, Salary, Interest on Drawings, so we have prepared the solution by following two methods, namely:

1. Charge against Profits
2. Out of Profits

This was done deliberately so as to make students aware-off the two above mentioned methods and also to match the answer with that of given in the NCERT. The appropriate answer to the question following Out of Profit Method should be as:

Tripathi's Current A/c balance Rs 3,600 and

Chauhan's Current A/c balance Rs 6,400.

In case no information regarding the treatment of above items is mentioned in the question, then we usually follow the Out of Profits Method.