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Kavita and Pradeep Are Partners, Sharing Profits in the Ratio of 3 : 2. They Employed Chandan as Their Manager, to Whom They Paid a Salary of Rs 750 P.M. - Accountancy

Journal Entry

Kavita and Pradeep are partners, sharing profits in the ratio of 3 : 2. They employed Chandan as their manager, to whom they paid a salary of Rs 750 p.m. Chandan deposited Rs 20,000 on which interest is payable @ 9% p.a. At the end of 2017 (after the division of profit), it was decided that Chandan should be treated as partner w.e.f. Jan. 1, 2014 with 1/6 th share in profits. His deposit being considered as capital carrying interest @ 6% p.a. like capital of other partners. Firm’s profits after allowing interest on capital were as follows: 

 

 

Rs

2014

Profit

59000

2015

Profit

62000

2016

Loss

(4000)

2017

Profit

78000

Record the necessary journal entries to give effect to the above.

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Solution

 

 

 

Interest on Loan

+

Salary

=

Total

2014

59,000

+

1,800

+

9,000

=

69,800

2015

62,000

+

1,800

+

9,000

=

72,800

2016

(4,000)

+

1,800

+

9,000

=

6,800

2017

78,000

+

1,800

+

9,000

=

88,800

 

1,95,000

+

7,200

+

36,000

=

2,38,200

Chandan received as Manager = Interest on Loan + Salary = 7,200 + 36,000 = Rs 43,200

Total Profit of 4 years before interest on Chandan’s Loan and Salary = 2,38,200
Interest on Chandan’s Caiptal for 4 years 
={20,000 × (6/100) = 1,200}
= 1,200 × 4 = Rs 4,800

Profit after interest on all partners Capital

= Total Profit of four years before interest on Chandan’s loan and Salary – Interest on Chandan’s Capital for four years

= 2,38,200 – 4,800

= Rs 2,33,400

Wrong Distribution – Distribution of 4 years
Profit when Chandan as a Manager

Kavita `{1,95,000 × (3/5)}`                  = 117000
Pradeep `{1,95,000 × (2/5)}`              = 78000

Chandan received as manager
= Interest on Loan + Salary
= 7200 + 36000                                     = 43200
                                                               238200

Right Distribution – Division of Profit when Chandan as Partner

Chandan Share of Profit `{2,33,400 × (1/6)}`

38,900

Interest on Capital

4,800

 

43,700

Kavita’s Share of Profit `{(2,33,400 – 38,900) ×(3/5)}` =

1,16,700

Pradeep’s share of Profit `{(2,33,400 – 38,900) × (2/5)}` =

77,800

Adjustment of Profit

 

Kavita

Pradeep

Chandan

=

Total

Distribution of profit when Chandan as partner

1,16,700

77,800

43,700

=

2,38,200

Less: Distribution of profit when Chandan as manager

(1,17,000)

(78,000)

(43,200)

=

(2,38,200)

Right distribution of Rs 4,140

(300)

(200)

(500)

=

NIL

 

Date

 

Particulars

L.F.

Debit Amount Rs

Credit Amount Rs

 

Kavita's Capital A/c     Dr.
Pradeep's Capital A/c  Dr.
 To Chandan's Capital A/c
(Adjustment of profit made)

 

300

200

 500

  Is there an error in this question or solution?
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APPEARS IN

NCERT Class 12 Accountancy - Not-for-profit Organisation and Partnership Accounts
Chapter 2 Accounting for Partnership : Basic Concepts
Numerical Questions | Q 41 | Page 108
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