Question

Raman, Shivam and Namita are partners sharing profits and losses in the ratio of 1 : 1 : 2. On 31^st March, 2024, their books showed the following balances:

Partners	Capital Account	Current Account	Loan from Partner
Raman	₹ 2,00,000	₹ 1,00,000 (Cr.)
Shivam	₹ 4,00,000	₹ 50,000 (Dr.)	₹ 1,50,000
Namita	₹ 6,00,000	₹ 1,50,000 (Cr.)

On 1^st April, 2024, they adopted the fluctuating capital method of accounting, thereby transferring the current account balances to their capital accounts.

Their partnership deed provided for the following:

• Interest on capital to be allowed @ 10% per annum.
• A monthly allowance of ₹ 8,000, ₹ 6,000 and ₹ 4,000 to be allowed to Raman, Shivam and Namita respectively.
• Interest on loan taken from a partner to be allowed at 10% per annum. Additional loan was taken from Shivam on 1^st October, 2024 amounting to ₹ 50,000.

During the year ending 31^st March, 2025, the firm earned a net profit of ₹ 5,00,000 before allowing interest on Shivam’s loan.

For the year ending 31^st March, 2025 you are required to:

1. Prepare Partners’ Capital a/c (6)
2. Pass adjusting entry for interest on loan from Shivam. (1)
3. Prepare Shivam’s loan account. (2)
4. Pass Journal entries for transferring the current account balances of Shivam and Namita to their capital accounts. (1)

Answer 1

i.

Dr.	Partner’s Capital A/c						Cr.
Particulars	Raman (₹)	Shivam (₹)	Namita (₹)	Particulars	Raman (₹)	Shivam (₹)	Namita (₹)
To Shivam’s Current A/c		50,000		By Bal. b/d	2,00,000	4,00,000	6,00,000
To Bal. c/d	4,57,625	4,88,625	9,36,250	By Raman’s Current A/c	1,00,000
				By Namita’s Current A/c			1,50,000
				By Interest on Capital	30,000	35,000	75,000
				By Allowance	96,000	72,000	48,000
				By P/L App. A/c	31,625	31,625	63,250
	4,57,625	5,38,625	9,36,250		4,57,625	5,38,625	9,36,250

ii.

Journal Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2025
March 31	Interest on Loan A/c   ...Dr.		17,500	-
	To Shivam’s loan A/c		-	17,500
	(Being adjusting entry to provide for interest on loan)

iii.

Dr.	Shivam’s Loan A/c						Cr.
Date	Particulars	L.F.	Amount (₹)	Date	Particulars	L.F.	Amount (₹)
31.03.25	To Balance c/d		2,17,500	01.04.24	By Balance b/d		1,50,000
				01.10.24	By Cash/Bank A/c		50,000
				31.03.25	By Interest on loan A/c		17,500
			2,17,500				2,17,500

iv.

Journal Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Shivam’s Capital A/c   ...Dr.		50,000	-
	To Shivam’s Current A/c		-	50,000
	(Being current a/c balances transferred to the capital a/c of the partners)
2.	Raman’s current A/c   ...Dr.		1,00,000	-
	Nimita’s current A/c   ...Dr.		1,50,000	-
	To Raman’s Capital A/c		-	1,00,000
	To Nimita’s capital A/c		-	1,50,000
	(Being current a/c balances transferred to the capital a/c of the partners)

Working Note:

Adjusted Capitals:

Raman = ₹ 2,00,000 + ₹ 1,00,000 = ₹ 3,00,000

Shivam = ₹ 4,00,000 – ₹ 50,000 = ₹ 3,50,000

Namita = ₹ 6,00,000 + ₹ 1,50,000 = ₹ 7,50,000

Interest on Capital @ 10%:

Raman = 3,00,000 × 10% = ₹ 30,000

Shivam = 4,00,000 × 10% = ₹ 35,000

Namita = 6,00,000 × 10% = ₹ 75,000

Interest on Loan (Shivam):

1,50,000 × 10% = ₹ 15,000

On additional ₹ 50,000 from Oct 1, 2024 (6 months):

50,000 × 10% × `6/12` = ₹ 2,500

Interest on loan = ₹ 15,000 + ₹ 2,500 = ₹ 17,500

Monthly Allowances (Salary):

Raman = ₹ 8,000 × 12 = ₹ 96,000

Shivam = ₹ 6,000 × 12 = ₹ 72,000

Namita = ₹ 4,000 × 12 = ₹ 48,000

Total Allowances = ₹ 2,16,000

Distributable Profit = ₹ 4,82,500 − ₹ 1,40,000 − ₹ 2,16,000

= ₹ 1,26,500

Profit Share (Ratio 1 : 1 : 2):

Raman = ₹ 1,26,500 × `1/4` = ₹ 31,625

Shivam = ₹ 1,26,500 × `1/4` = ₹ 31,625

Namita = ₹ 1,26,500 × `2/4` = ₹ 63,250