Q X and Y are partners sharing profits and losses in the ratio of 3:2 They employed Z - Accountancy - Accounting for Partnership Basic Concepts

Question

Q X and Y are partners sharing profits and losses in the ratio of
3:2 They employed Z as their Manager to whom they paid a salary of
Rs 7,500 per month Z had deposited Rs 2,00,000 on which interest
was payable @9% p a At the end off the accounting year (i e 31st
March, 2018) 201718 (after division of the year's profits), it was
decided that Z should be treated as a partner with effect from 1st
April, 2014 with 1/6 th share of profits, his deposit being
considered as capital carrying interest 6% p a like capitals of
other partners The firm's profits and losses after allowing
interest on capitals were -2014-15 Profit Rs 5,90,000; 2015-16
Profit Rs 6,26,000; 2016-17 Loss Rs 40,000 and 2017-18: Profit Rs
7,80,000 Record necessary Journal entries to give effect to the
above

Neha Chopra · Accepted Answer

Dear Student

Journal

Date
Particulars

Debit
Credit

Z's Deposit A/c
Dr
200,000

To Z's Capital A/c

200,000

(Being deposit converted into capital)

X's Capital A/c (6,000 x 3/5)
Dr
3,600

Y's Capital A/c (6,000 x 2/5)
Dr
2,400

To Z's Capital A/c

6,000

(Being Adjustment made in PSR between X
and Y)

Statement of
Working

Particulars
Z

The amount that
should have been credited or (Debited) for Z as a Partner

1/6th Share in Profits of 4
years :

23,40,000 x 1/6
390,000

Interest on Capital of Rs
2,00,000/- for 4 Years @ 6%
48,000

Total
438,000

Amount which is actually paid
to Z

As Salary for 4 years @
7,500/- p m
360,000

As Interest on Loan @ 9% on Rs
2,00,000/- for 4 years
72,000

Total
432,000

Difference: to be credited or
(debited) to Z's Capital A/c
6,000

Credit

Computation of Profit for Appropriation of Previous Years When Z
would be treated as Partner

Particulars
Amount

Profit for the Year

2014-15
590,000

2015-16
626,000

2016-17
(40,000)

2017-18
780,000

Total Profit of 4 Years
1,956,000

Add : Interest on Deposit of
Z, charged to above profit

Interest @ 9% on Rs 2,00,000/-
for 4 Years
72,000

Add : Salary paid to Z in 4
years @ 7,500 p m
360,000

Less : Interest on
Capital to Z for 4years i e 6% on Rs 2,00,000 for 4 years
(48,000)

Total Profit available for
Distribution (After Interest on Capital to Z)
2,340,000

Regards

Journal
Date	Particulars		Debit	Credit

	Z's Deposit A/c	Dr.	200,000
	To Z's Capital A/c			200,000
	(Being deposit converted into capital)

	X's Capital A/c (6,000 x 3/5)	Dr.	3,600
	Y's Capital A/c (6,000 x 2/5)	Dr.	2,400
	To Z's Capital A/c			6,000
	(Being Adjustment made in PSR between X and Y)

Statement of Working
Particulars	Z
The amount that should have been credited or (Debited) for Z as a Partner
1/6th Share in Profits of 4 years :
23,40,000 x 1/6	390,000
Interest on Capital of Rs 2,00,000/- for 4 Years @ 6%	48,000

Total	438,000


Amount which is actually paid to Z
As Salary for 4 years @ 7,500/- p.m	360,000
As Interest on Loan @ 9% on Rs 2,00,000/- for 4 years	72,000

Total	432,000

Difference: to be credited or (debited) to Z's Capital A/c	6,000
	Credit

Computation of Profit for Appropriation of Previous Years When Z would be treated as Partner
Particulars	Amount
Profit for the Year
2014-15	590,000
2015-16	626,000
2016-17	(40,000)
2017-18	780,000
Total Profit of 4 Years	1,956,000
Add : Interest on Deposit of Z, charged to above profit
Interest @ 9% on Rs 2,00,000/- for 4 Years	72,000
Add : Salary paid to Z in 4 years @ 7,500 p.m	360,000
Less : Interest on Capital to Z for 4years i.e 6% on Rs 2,00,000 for 4 years	(48,000)
Total Profit available for Distribution (After Interest on Capital to Z)	2,340,000