Triphati and Chauhan are partners in a firm sharing profits and losses in the ratio of 3:2. Their capitals were Rs 60,000 and Rs 40,000 as on January 01, 2005. During the year they earned a profit of Rs 30,000. According to the partnership deed both the partners are entitled to Rs 1,000 per month as Salary and 5% interest on their capital. They are also to be charged an interest of 5% on their drawings, irrespective of the period, which is Rs 12,000 for Tripathi, Rs 8,000 for Chauhan. Prepare Partner’s Accounts when, capitals are fixed.
a) If interest on Capital and Partners’ salaries and interest on drawings is charged against profit, the solution will be as:
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Profit and Loss Appropriation Account |
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Dr. |
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Cr. |
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Particulars |
Amount Rs |
Particulars |
Amount Rs |
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Profit transferred to |
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Profit and Loss |
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30,000 |
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Triphati’s Current Account |
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18,000 |
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Chauhan’s Current Account |
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12,000 |
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30,000 |
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30,000 |
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Partners’ Capital Account |
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Dr. |
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Cr. |
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Particulars |
Tripathi |
Chauhan |
Particulars |
Tripathi |
Chauhan |
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Balance b/d |
60,000 |
40,000 |
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Balance c/d |
60,000 |
40,000 |
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60,000 |
40,000 |
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60,000 |
40,000 |
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Partners’ Current Account |
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Dr. |
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Cr. |
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Particulars |
Tripathi |
Chauhan |
Particulars |
Tripathi |
Chauhan |
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Drawings |
12,000 |
8,000 |
Interest on Capital |
3,000 |
2,000 |
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Interest on Drawings |
600 |
400 |
Partners’ Salaries |
12,000 |
12,000 |
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Balance c/d |
20,400 |
17,600 |
Profit & Loss Appropriation |
18,000 |
12,000 |
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33,000 |
26,000 |
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33,000 |
26,000 |
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b) ) If interest on Capital and Partners’ salaries and interest on drawings is distributed out of profit, the solution will be as:
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Profit and Loss Appropriation Account |
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Dr. |
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Cr. |
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Particulars |
Amount Rs |
Particulars |
Amount Rs |
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Partners’ Salary |
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Profit and Loss (Profit) |
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30,000 |
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Tripathi 1,000 × 12 = |
12,000 |
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Interest on Drawings |
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Chauhan 1,000 × 12 = |
12,000 |
24,000 |
Tripathi |
600 |
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Chauhan |
400 |
1,000 |
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Interest on Capital |
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Tripathi |
3,000 |
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Chauhan |
2,000 |
5,000 |
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Profit Transferred to |
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Tripathi’s Current |
1,200 |
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Chauhan’s Current |
800 |
2,000 |
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31,000 |
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31,000 |
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Partners’ Capital Account |
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Dr. |
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Cr. |
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Particulars |
Tripathi |
Chauhan |
Particulars |
Tripathi |
Chauhan |
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Balance b/d |
60,000 |
40,000 |
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Balance c/d |
60,000 |
40,000 |
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60,000 |
40,000 |
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60,000 |
40,000 |
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Partners’ Current Account |
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Dr. |
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Cr. |
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Particulars |
Tripathi |
Chauhan |
Particulars |
Tripathi |
Chauhan |
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Drawings |
12,000 |
8,000 |
Partners’ Salaries |
12,000 |
12,000 |
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Interest on Drawings |
600 |
400 |
Interest on Capital |
3,000 |
2,000 |
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Balance c/d |
3,600 |
6,400 |
Profit and Loss Appropriation |
1,200 |
800 |
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16,200 |
14,800 |
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16,200 |
14,800 |
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As the question is silent about the treatment of Interest on Capitals, Salary, Interest on Drawings, so we have prepared the solution by following two methods, namely:
- Charge against Profits
- Out of Profits
This was done deliberately so as to make students aware-off the two above mentioned methods and also to match the answer with that of given in the NCERT. The appropriate answer to the question following Out of Profit Method should be as:
Tripathi's Current A/c balance Rs 3,600 and
Chauhan's Current A/c balance Rs 6,400.
In case no information regarding the treatment of above items is mentioned in the question, then we usually follow the Out of Profits Method.