Q.No.51 | Chapter 2 – Accounting for Partnership Firms: Fundamentals | T.S. Grewal 12 Class Book Keeping Part - A - Vol. 1

Question 51 Chapter 2 of +2-A

51. Ali the Bahadur are partners in firm sharing profits and losses as Ali 70% and Bahadur 30%. Their respective capitals as at 1st April 2018 stand as Ali 25,000 and Bahadur 20,000. The partners are allowed interest on capitals @ 5% p.a. Drawings of the partners during the year ended 31st March 2019 amounted to 3,500 and 2,500 respectively. Profit for the year, before charging interest on capital and annual salary of Bahadur @ 3,000, amounted to 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.

The solution of Question 51 Chapter 2 of +2-A:

Profit and Loss Appropriation Account for the year ended 31st March 2019

Expenditure		Amount	Income			Amount
To Interest on Capital A/c *2			By Profit and Loss A/c			40,000
Ali's Capital A/c	1,250
Bahadur's Capital A/c	1,000	2,250
To Reserve A/c *3		3,475
To Bahadur’s Salary A/c		3,000
To Profit Transferred to *4
Ali's Current A/c	21,892
Bahadur's Current A/c	9,383	31,275
		40,000				40,000

 

Partners’ Capital Accounts for the year ended 31st March 2019

Particulars	Ali	Bahadur	Particulars	Ali	Bahadur
			By Balance B/d	25,000	20,000
To Balance c/d	25,000	20,000
	25,000	20,000		25,000	20,000

 

Partners’ Capital Accounts for the year ended 31st March 2019

Particulars	Ali	Bahadur	Particulars	Ali	Bahadur
To Drawing a/c	3,500	2,500	By Interest on Capital A/c *1	1,250	1,000
			By Salaries A/c	-	3,000
			By P&L Appropriation A/c*2	21,892	9,383
To Balance c/d	19,642	10,883
	23,142	13,383		23,142	13,383

 

Working Note: -

*2 Calculation of Interest on Ali's, Bahadur's, & C's Capital
Interest on Capital = Opening Capital X Rate of Interest

Interest on Ali's Capital	=	25,000	X	5
				100

Interest on Ali's Capital = 1,250/-

Interest on Bahadur's Capital	=	20,000	X	5
				100

Interest on Bahadur's Capital = 1,000/-

*3 Calculation of Amount to be transferred to Reserve
Net Profit after interest & Salary = 30,000
Distribution of profit in the ratio of 5:3:2

Amount for Reserve	=	10% of Divisible Profit
Divisible Profit	=	Profit − Interest on Capital - C's Salary
	=	40,000 - 2,250 -3,000 = Rs 34,750

,

Amount of Reserve	=	34,750	X	10
				100

Amount of Reserve = 3,475/-

*4: -Calculation of share of profit of Ali’s & Bahadur's
Net Profit after interest & Salary = 31,275
Distribution of profit in the ratio of 70:30

Profit share of Ali	=	31,275 X 70/100
Profit share of Ali	=	21,892/-
Profit share of Bahadur	=	31,275 X 30/100
Profit share of Bahadur	=	9,383/-

Comment if you have any questions.

Also, Check out the solved question of previous Chapters: -

T.S. Grewal’s Double Entry Book Keeping +2 (Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms)

• Chapter No. 1 – Financial Statement of Not-For-Profit Organisations
• Chapter No. 2 – Accounting for Partnership Firms – Fundamentals
• Chapter No. 3 – Goodwill: Nature and Valuation
• Chapter No. 4 – Change in Profit-Sharing Ratio Among the Existing Partners
• Chapter No. 5 – Admission of a Partner
• Chapter No. 6 – Retirement/Death of a Partner
• Chapter No. 7 – Dissolution of a Partnership Firm

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

• Chapter No. 8 – Company Accounts –  Accounting for Share Capital
• Chapter No. 9 – Company Accounts – Issue of Debentures
• Chapter No. 10 – Redemption of Debentures

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

• Chapter No. 1 – Financial Statements of a Company
• Chapter No. 2 – Financial Statement Analysis 
• Chapter No. 3 – Tools of Financial Statement Analysis – Comparative Statements and Common- Size Statements
• Chapter No. 4 – Accounting Ratios
• Chapter No. 5 – Cash Flow Statement

 

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