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 Rs. 25,000 and Bahadur Rs. 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 Rs. 3,500 and Rs. 2,500 respectively. Profit for the year, before charging interest on capital and annual salary of Bahadur @ Rs. 3,000, amounted to Rs. 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:

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

2. Calculation of Interest on Capital

Interest on Ali's Capital = 25,000 x \(\frac 5{100}\) = Rs 1,250

Interest on Bhadur's Capital = 20,000 x \(\frac 5{100}\) = Rs 1,000

3. Calculation of Amount to be transferred to Reserve

Amount transferred to Reserve = 10% of Divisible Profits

\(\)= 10% (40,000 - 2,250 - 3,000) 

= Rs 3,475

4. Calculation of Profit Share of each Partner

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

= Rs 31,275

Ali's Profit Share = 31,725 x \(\frac{70}{100}\) = Rs 21,892

Bahadur's Profit Share = 31,275 x \(\frac{30}{100}\) = Rs 9,383

Answer 2

2. Calculation of Interest on capital