# 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.

#### 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

= 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

 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
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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