Question

(When Capitals are Fixed and Fluctuating). $A$ and $B$ are partners with capitals of $Rs.60,000$ and $Rs.20,000$ respectively on 1st April, 2017. Net profit (before taking into account the provisions of the Deed) for the year ended 31st March, 2018 was $Rs.24,000$. The Partnership Deed provides for the following:
(a) B is entitled to a salary of $Rs.6,000$ p.a.
(b) Interest on capitals is to be allowed @ 6% p.a.
(c) Interest on drawings is to be charged @ 5% p.a.
The drawings of the partners $A$ and $B$ were $Rs.6,000$ and $Rs.4,000$ respectively and interest on drawings for $A$ being $Rs.200$ and for $BRs.100$.
Pass the Journal entries for the above and show how profit will be divided between $A$ and $B$ and also show the Capital Accounts of the partners along with their Drawings Accounts:
(i) if they are fixed, and (ii) if they are fluctuating.

Answer 1

Journal Entries (Fixed Capitals)

Profit and loss A/c Dr. 24,000

To Profit and loss App A/c 24,000

(Being profit transferred to P&L App account)

B's salary A/c Dr. 6000

To B's current A/c 6000

(being salary credited)

Profit and loss App A/c Dr. 6000

To B's salary A/c 6000

(Being salary transferred )

Interest on capital A/c Dr. 4,800

To A's current A/c 3600

To B's current A/c 1200

(being interest allowed)

Profit and loss App A/c Dr. 4800

To Interest on capital A/c 4800

(Being interest transferred )

A's current A/c Dr. 200

B's current A/c Dr. 100

To Interest on Drawings A/c 300

(Being interest charged)

Interest on drawings A/c Dr. 300

To Profit and loss App A/c 300

(Being interest transferred )

A's drawings A/c Dr. 6000

B's drawings A/c Dr. 4000

To Cash A/c 10,000

(Being drawings made)

A's current A/c Dr 6000

B's current A/c Dr. 4000

To A's drawings A/c 6000

To B's drawings A/c 4000

(Being drawings transferred)

Profit and loss App A/c Dr. 13,500

To A's current A/c 6750

To B's current A/c 6750

(Being profit distributed)

Profit And Loss Appropriation Account

Particulars	Amount	Particulars	Amount
To Interest on Capital A/c A-60,000*6%= 3600 B-20000*6%=1200	4800	By Net profit A/c	24,000
To B' s salary A/c	6000	By Interest on Drawings A/c A- 200 B-100	300
To Profit transferred to- A's capital A/c- 6750 B's capital A/c-6750	13,500
Total	24,300	Total	24,300

A's Capital Account

Particulars	Amount	Particulars	Amount
To bal c/d	60,000	By bal b/d	60,000
Total	60,000	Total	60,000

B's Capital Account

Particulars	Amount	Particulars	Amount
To bal c/d	20000	By bal b/d	20,000
Total	20000	Total	20000

A's Current Account

Particulars	Amount	Particulars	Amount
To A's drawings A/c	6000	By interest on capital A/c	3600
To interest on drawings A/c	200	By profit and loss App A/c	6750
To bal c/d	4150
Total	10,350	Total	10,350

B's Current Account

Particulars	Amount	Particulars	Amount
To B's drawings	4000	By Interest on capital	1200
To Interest on drawings A/c	100	By B's salary A/c	6000
To Bal c/d	9850	By P&L App A/c	6750
Total	13,950	Total	13,950

A's Drawings Account

Particulars	Amount	Particulars	Amount
To cash A/c	6000	By A's current A/c	6000
Total	6000	Total	6000

B's Drawings Account

Particulars	Amount	Particulars	Amount
To Cash A/c	4000	By B's current A/c	4000
Total	4000	Total	4000

Journal Entries (Fluctuating Capital)

Profit and loss A/c Dr. 24,000

To Profit and loss App A/c 24,000

(Being profit transferred to P&L app account)

B's salary A/c Dr. 6000

To B's capital A/c 6000

(Being the salary credited to B's capital account)

Interest on capital A/c Dr. 4800

To A's capital A/c 3600

To B' s capital A/c 1200

(Being the interest on capital allowed to partners @6%)

Profit and loss App A/c Dr. 4800

To Interest on capital A/c 4800

(Being the interest on capital transferred to P&L app account)

A's capital A/c Dr 200

B's capital A/c Dr. 100

To Interest on drawings A/c 300

(Being interest charged)

Interest on drawings A/c Dr. 300

To Profit and loss App A/c 300

(Being interest on drawings transferred to P&L app account)

A's Drawings A/c Dr. 6000

B's Drawings A/c Dr. 4000

To cash/Bank A/c 10,000

(Being drawings made by partner)

A's capital A/c Dr. 6000

B's capital A/c Dr. 4000

To A's Drawings A/c 6000

To B's Drawings A/c 4000

(Being drawings transferred to capital accounts)

Profit and loss App A/c Dr. 13,500

To A's capital A/c 6750

To B's capital A/c 6750

(Being the profit distributed among partners)

A's CAPITAL ACCOUNT

Particulars	Amount	Particulars	Amount
To A's drawings A/c	6000	By bal b/d	60,000
To Interest on drawings A/c	200	By interest on capital	3600
To Bal c/d	64,150	By P&L App A/c	6750
Total	70,350	Total	70,350

B's CAPITAL ACCOUNT

Particulars	Amount	Particulars	Amount
To B's drawings A/c	4000	By bal b/d	20,000
To Interest on drawings A/c	100	By Interest on capital A/c	1200
To bal c/d	29,850	By B's salary	6000
		By P&L App A/c	6750
Total	33,950	Total	33,950

A's DRAWINGS ACCOUNT

Particulars	Amount	Particulars	Amount
To Cash/Bank A/c	6000	By A's Capital A/c	6000
Total	6000	Total	6000

B's DRAWINGS ACCOUNT

Particulars	Amount	Particulars	Amount
To cash/bank	4000	By B's capital A/c	4000
Total	4000	Total	4000