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 April 01, 2019. 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% p.a. interest on their capital. They are also to be charged an interest of 5% p.a. on their drawings, irrespective of the period, which is Rs. 12,000 for Tripathi, Rs. 8,000 for Chauhan. Prepare Partner’s capital/current accounts when, capitals are fixed.
Profit and Loss Appropriation Account Dr. Side: Salary (Tripathi Rs.12,000 + Chauhan Rs.12,000) Rs.24,000; Interest on Capital (Tripathi Rs.3,000 + Chauhan Rs.2,000) Rs.5,000; Profit transferred (Tripathi Rs.1,200 + Chauhan Rs.800) Rs.2,000. Cr. Side: Net Profit Rs.30,000; Interest on Drawings (Tripathi Rs.600 + Chauhan Rs.400) Rs.1,000.
Partners' Capital Accounts (Fixed) Tripathi: Opening Balance Rs.60,000; Closing Balance Rs.60,000. Chauhan: Opening Balance Rs.40,000; Closing Balance Rs.40,000.
Partners' Current Accounts Tripathi: Dr. Side - Drawings Rs.12,000, Interest on Drawings Rs.600, Balance c/d Rs.3,600. Cr. Side - Salary Rs.12,000, Interest on Capital Rs.3,000, Share of Profit Rs.1,200. Chauhan: Dr. Side - Drawings Rs.8,000, Interest on Drawings Rs.400, Balance c/d Rs.6,400. Cr. Side - Salary Rs.12,000, Interest on Capital Rs.2,000, Share of Profit Rs.800.
Explanation
When capitals are fixed, all adjustments like salary, interest on capital, drawings, interest on drawings, and share of profit are recorded in the Current Accounts. The Capital Accounts remain unchanged at their original amounts. The profit available for distribution is calculated by adding interest on drawings to net profit and deducting all appropriations.
Solution Steps
Step 1: Calculate Salary - Rs.1, months = Rs.12,000 per partner. Total = Rs.24,000.
Step 2: Calculate Interest on Capital @ 5% p.a. - Tripathi: 5% of Rs.60,000 = Rs.3,000; Chauhan: 5% of Rs.40,000 = Rs.2,000.
Step 3: Calculate Interest on Drawings @ 5% p.a. - Tripathi: 5% of Rs.12,000 = Rs.600; Chauhan: 5% of Rs.8,000 = Rs.400.
Step 4: Prepare Profit and Loss Appropriation Account - Net Profit Rs.30,000 + Interest on Drawings Rs.1,000 = Rs.31,000. Less: Salary Rs.24,000 and Interest on Capital Rs.5,000 = Remaining Profit Rs.2,000.
Step 5: Distribute Profit in ratio 3:2 - Tripathi: 3/5 × Rs.2,000 = Rs.1,200; Chauhan: 2/5 × Rs.2,000 = Rs.800.
Step 6: Prepare Current Accounts - Credit side: Salary, Interest on Capital, Share of Profit. Debit side: Drawings, Interest on Drawings. Balance c/d: Tripathi Rs.3,600 (Credit); Chauhan Rs.6,400 (Credit).