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 ₹ 7,500 per month. Z had deposited ₹ 2,00,000 on which interest was payable ₹ 9% p.a. At the end off the accounting year (i.e., 31st March, 2018) 2017-18 (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 1/6th 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 ₹ 5,90,000; 2015-16: Profit ₹ 6,26,000; 2016-17: Loss ₹ 40,000 and 2017-18: Profit ₹ 7,80,000. Record necessary Journal entries to give effect to the above.

X and Y are partners sharing profits and losses in the ratio of 3 : 2.

1.	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 ₹ 7,500 per month. Z had deposited ₹ 2,00,000 on which interest was payable ₹ 9% p.a. At the end off the accounting year (i.e., 31st March, 2018) 2017-18 (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 1/6th 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 ₹ 5,90,000; 2015-16: Profit ₹ 6,26,000; 2016-17: Loss ₹ 40,000 and 2017-18: Profit ₹ 7,80,000. Record necessary Journal entries to give effect to the above.
Answer» n: Journal Particulars L.F. Debit Rs. Credit Rs. Z's Loan A/c Dr. 2,00.000 To Z's Capital A/c 2.00,000 (Being Z's Loan transferred to his Capital Account) ,X's Capital A/c Dr. 3,600 Y's Capital, A/c Dr. 2,400 To Z's Capital A/c 6,000 (Being Z's EXCESS credit balance paid to him by X and Y in the ratio of 3 : 2) Working Notes : 1.Profit before Es Salary and Interest on Loan Profit before Z's Salary and Interest on LoanYear Profit/Loss + Salary + Interest on Profit before Interes z's loan Interest on Z's Capital (for 4 years) 2012 - 2013 5,90,000 + 90,000 + 18,000 = 6.98,000 2013 - 2014 6,26,000 + 90,000 + 18,000 = 7,34,000 2014 - 2015 (40,000) + 90,000 + 18,000 = 68,000 2015 - 2016 7,80,000 + 90,000 + 18,000 = 8,88,000 Profit before Interest on Z's Capital (for 4 years) 2. Calculation of Interest on Capital Interest on Z's Capital = 2,00,000 x =12,000 p.a. Interest on Z's Capital for 4 years =12,003 x 4= 48,000 3. Calculation of Z's Share of Profit as a Partner Profit after Interest on Z's Capital = Profit before Interest on Es Capital - Interest on Es Capital = Rs.23,88,000 -Rs.48,000 = Rs.23,40,000 Z's Profit Share as a Partner for 4 years 1=23,40,000 x =3,90,000 ∴ Zs Share of Interest on Capital and Profit Share as a Partner = Rs.48,000 + Rs.3,90,000 = Rs.4,38,000 Zs Salary and Interest on Loan as MANAGER = Rs.72,000 + Rs.3,60,000 = Rs.4,32,000 Adjusting Table Z's Share as a Partner 4,38,000 LESS : Es Share as a Manager (4,32,000) Z will get from X and Y in their profit sharing ratio 6,000 Profit to be transferred by X and Yin Favour of Z X =6,000 x =3,600 Y=6,000 x = 2400

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