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a b and C are partners with capital of ₹ 5000,₹ 4000 and ₹ 10000 respectively after providing interest on capital @ 8% per annum the profit are divisible as follows:A1/2, B1/3 and C1/6 but a and b have granted that C's share not amount less than₹6000 in any year. the net profit for the year amounts to ₹24,000 before charging interest on capital you are required to pass journal entries for the division of profit in the books of firm.
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a b and C are partners with capital of ₹ 5000,₹ 4000 and ₹ 10000 resp...
IOC of A: 8/100*5000= 400
IOC of B: 8/100*4000=320
IOC of C: 8/100*10000=800
Total IOC =1520
Divisible profit=24000-1520
=22480
Share of A: 22480*1/2=11240
Share of B: 22480*1/3=7493
Share of C: 22480*1/6=3747
Deficiency in C's profit= 6000-3747
= 2253
Deficiency to be incurred by A & B in a ratio 1/2:1/3
By A: 2253*3/5= 450.6*3= 1351.8=Rs1352
By B: 2253*2/5= 450.6*2= 901.2= Rs901
Journal entry
A's capital A/C dr. 1352
B's capital A/C dr. 901
To C's capital A/C 2253
IOC of B: 8/100*4000=320
IOC of C: 8/100*10000=800
Total IOC =1520
Divisible profit=24000-1520
=22480
Share of A: 22480*1/2=11240
Share of B: 22480*1/3=7493
Share of C: 22480*1/6=3747
Deficiency in C's profit= 6000-3747
= 2253
Deficiency to be incurred by A & B in a ratio 1/2:1/3
By A: 2253*3/5= 450.6*3= 1351.8=Rs1352
By B: 2253*2/5= 450.6*2= 901.2= Rs901
Journal entry
A's capital A/C dr. 1352
B's capital A/C dr. 901
To C's capital A/C 2253
Community Answer
a b and C are partners with capital of ₹ 5000,₹ 4000 and ₹ 10000 resp...
Journal Entries for the Division of Profit in the Books of the Firm:
To record the division of profit in the books of the firm, we need to follow a step-by-step process. Let's break it down into different headings and key points.
1. Calculation of Interest on Capital:
Before dividing the profit, we need to calculate the interest on capital for each partner. The interest on capital is typically calculated at the agreed rate, which in this case is 8% per annum.
The interest on capital for each partner can be calculated as follows:
- A's interest on capital = ₹5,000 × 8% = ₹400
- B's interest on capital = ₹4,000 × 8% = ₹320
- C's interest on capital = ₹10,000 × 8% = ₹800
2. Allocation of Profit:
The profit is divided among the partners based on their agreed profit-sharing ratio, which is A:1/2, B:1/3, and C:1/6.
To calculate the respective shares of A, B, and C, we can use the following formula:
- A's share = (Profit - Interest on Capital) × A's profit-sharing ratio
- B's share = (Profit - Interest on Capital) × B's profit-sharing ratio
- C's share = (Profit - Interest on Capital) × C's profit-sharing ratio
Given that the net profit for the year amounts to ₹24,000, we can now calculate the profit shares for each partner:
- A's share = (₹24,000 - ₹400) × 1/2 = ₹11,800
- B's share = (₹24,000 - ₹320) × 1/3 = ₹7,893.33
- C's share = (₹24,000 - ₹800) × 1/6 = ₹3,466.67
3. Adjustment for C's Minimum Share:
As per the agreement, A and B have granted that C's share should not be less than ₹6,000 in any year. Therefore, we need to adjust C's share to meet this requirement.
Since C's calculated share is less than ₹6,000, we need to increase it to ₹6,000. The adjustment entry would be:
- C's share adjustment = ₹6,000 - ₹3,466.67 = ₹2,533.33
4. Journal Entries:
Based on the above calculations and adjustments, the journal entries for the division of profit would be as follows:
1. To record the allocation of profit:
- Profit and Loss Account (Profit for the year) Debit ₹24,000
To A's Capital Account (A's share) Credit ₹11,800
To B's Capital Account (B's share) Credit ₹7,893.33
To C's Capital Account (C's share) Credit ₹3,466.67
2. To adjust C's share to meet the minimum requirement:
- Profit and Loss Account (Profit for the year) Debit ₹2,533.33
To C's Capital Account (C's share adjustment) Credit ₹2,533.33
Conclusion:
To record the division of profit in the books of the firm, we need to follow a step-by-step process. Let's break it down into different headings and key points.
1. Calculation of Interest on Capital:
Before dividing the profit, we need to calculate the interest on capital for each partner. The interest on capital is typically calculated at the agreed rate, which in this case is 8% per annum.
The interest on capital for each partner can be calculated as follows:
- A's interest on capital = ₹5,000 × 8% = ₹400
- B's interest on capital = ₹4,000 × 8% = ₹320
- C's interest on capital = ₹10,000 × 8% = ₹800
2. Allocation of Profit:
The profit is divided among the partners based on their agreed profit-sharing ratio, which is A:1/2, B:1/3, and C:1/6.
To calculate the respective shares of A, B, and C, we can use the following formula:
- A's share = (Profit - Interest on Capital) × A's profit-sharing ratio
- B's share = (Profit - Interest on Capital) × B's profit-sharing ratio
- C's share = (Profit - Interest on Capital) × C's profit-sharing ratio
Given that the net profit for the year amounts to ₹24,000, we can now calculate the profit shares for each partner:
- A's share = (₹24,000 - ₹400) × 1/2 = ₹11,800
- B's share = (₹24,000 - ₹320) × 1/3 = ₹7,893.33
- C's share = (₹24,000 - ₹800) × 1/6 = ₹3,466.67
3. Adjustment for C's Minimum Share:
As per the agreement, A and B have granted that C's share should not be less than ₹6,000 in any year. Therefore, we need to adjust C's share to meet this requirement.
Since C's calculated share is less than ₹6,000, we need to increase it to ₹6,000. The adjustment entry would be:
- C's share adjustment = ₹6,000 - ₹3,466.67 = ₹2,533.33
4. Journal Entries:
Based on the above calculations and adjustments, the journal entries for the division of profit would be as follows:
1. To record the allocation of profit:
- Profit and Loss Account (Profit for the year) Debit ₹24,000
To A's Capital Account (A's share) Credit ₹11,800
To B's Capital Account (B's share) Credit ₹7,893.33
To C's Capital Account (C's share) Credit ₹3,466.67
2. To adjust C's share to meet the minimum requirement:
- Profit and Loss Account (Profit for the year) Debit ₹2,533.33
To C's Capital Account (C's share adjustment) Credit ₹2,533.33
Conclusion:
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a b and C are partners with capital of ₹ 5000,₹ 4000 and ₹ 10000 respectively after providing interest on capital @ 8% per annum the profit are divisible as follows:A1/2, B1/3 and C1/6 but a and b have granted that C's share not amount less than₹6000 in any year. the net profit for the year amounts to ₹24,000 before charging interest on capital you are required to pass journal entries for the division of profit in the books of firm. Related: Problems Based on Fundamentals- Accounting for Partnership Firms-Fundamentals, Class 12, Accountancy?
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