Question

Tim and Leena started a partnership business on 1^st July 2023, with fixed capital contributions of ₹ 3,00,000 and ₹ 2,50,000 respectively.

On 1^st January 2024, they decided that:

The total fixed capital of the firm to be ₹ 6,00,000 contributed by the partners in the profit-sharing ratio. Accordingly on 1^st January 2024, Tim and Leena introduced or withdrew capital.

Their partnership deed contained the following clauses:

1. Interest on capital to be allowed @ 10% per annum to both the partners.
2. Rent @ ₹ 2,000 per month to Tim for the use of his premises for business purposes.
3. 10% of the Trading Profit to be transferred to General Reserve.
4. The profit-sharing ratio of the partners to be 3 : 2.

The trading profit of the firm for the first year of the partnership after considering all charges against profits was ₹ 1,50,000.

You are required to pass journal entries for the year 2023-24.

Answer 1

In the Books of Tim and Leena Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1 July 2023	Cash A/c     ...Dr.		5,50,000
	To Tim’s Capital A/c			3,00,000
	To Leena’s Capital A/c			2,50,000
	(Being capital brought in by partners)
1 January 2024	Cash A/c     ...Dr.		60,000
	To Tim’s Capital A/c			60,000
	(Being additional capital brought in by Tim)
1 January 2024	Leena’s Capital A/c     ...Dr.		10,000
	To Cash A/c			10,000
	(Being capital withdrawn by Leena)
31 March 2024	Profit and Loss A/c     ...Dr.		18,000
	To Tim’s Current A/c			18,000
	(Being rent allowed to Tim)
31 March 2024	Profit and Loss A/c     ...Dr.		1,50,000
	To P&L Appropriation A/c			1,50,000
	(Being net profit transferred)
31 March 2024	P&L Appropriation A/c     ...Dr.		15,000
	To general reserve			15,000
	(Being 10% Profit transferred to Reserve)
31 March 2024	Interest on Capital A/c     ...Dr.		42,500
	To Tim’s Current A/c			24,000
	To Leena’s Current A/c			18,500
31 March 2024	P&L Appropriation A/c     ...Dr.		42,500
	To Interest on Capital A/c			42,500
	(Being appropriation of interest on capital)
31 March 2024	Profit and Loss Appropriation A/c     ...Dr.		92,500
	To Tim’s Current A/c			55,500
	To Leena’s Current A/c			37,000
	(Being P&L balance transferred)

Working Note:

Interest on Tim’s capital:

10% of 3,00,000 for 6 months + 10% of 3,60,000 for 3 months

`= 300000xx10/100xx6/12 + 360000`

`=10/100xx3/12 `

= 15000 + 9000

= ₹ 24,000

Interest on Leena’s capital:

10% of 2,50,000 for 6 months + 10% of 2,40,000 for 3 months

`= 250000 xx 10/100 xx 6/12 + 240000`

`10/100xx3/12`

= 12,500 + 6,000

= ₹ 18,500