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Financial Accounting
1
Lecture – 35
Mark up on Capital
A partner may be given markup on the capital invested by him.
Markup can be calculated on the whole amount or an amount exceeding a specific limit depending upon the terms of the agreement.
Financial Accounting
2
Lecture – 35
Mark up on Drawings
Markup may also be charged on drawings, depending upon the partnership agreement.
Financial Accounting
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Lecture – 35
Markup on capital and drawing do not become part of Profit and Loss Account. They are treated in the appropriation account.
Financial Accounting
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Lecture – 35
Recording
• Mark up on Capital
Debit Profit and Loss Appropriation Account
Credit Partner A’s Current Account
Credit Partner B’s Current Account
Credit Partner C’s Current Account
Financial Accounting
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Lecture – 35
Recording
• Mark up on Drawings
Debit Partner A’s Current Account
Debit Partner B’s Current Account
Debit Partner C’s Current Account
Credit Profit and Loss Appropriation Account
Financial Accounting
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Lecture – 35
Calculation – Mark up on Capital
EXAMPLE
• Mr. Ali is a partner in AB Partnership.
• He is given mark up on capital @ 5 % on the proportionate amount of capital invested during the year.
• The details of his capital account are as follows: Opening balance as on July 01, Rs. 150,000 Further capital invested on December 01, Rs. 75,000
• Calculate the markup on his capital.
Financial Accounting
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Lecture – 35
Calculation – Mark up on Capital
SOLUTION
• From July 1 to November 30 capital was Rs. 150,000 and From December 1 to June 30 it increased to Rs. 225,000.
• Markup will be calculated as follows:
150,000 x 5% = 7,500 x 5 / 12 = 3,125.00
225,000 x 5% = 11,250 x 7 / 12 = 6,562.50
TOTAL 9,687.50
Financial Accounting
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Lecture – 35
Calculation – Mark up on Drawings
EXAMPLE
• Mr. Umer is a partner in a partnership firm. He drew following amounts during the year: August 1 Rs. 2000 October 1 Rs. 2500 November 1 Rs. 1500 March 1 Rs. 2000 June 1 Rs. 3000
• Calculate the markup on his drawing if the rate is 5%.
• Consider a financial year from July to June.
Financial Accounting
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Lecture – 35
Calculation – Mark up on Drawings
SOLUTION
Aug 1 Rs. 2,000 x 5% = 100 x 11 / 12 = 91.67
Oct 1 Rs. 2,500 x 5% = 125 x 9 / 12 = 93.75
Nov 1 Rs. 1,500 x 5% = 75 x 8 / 12 = 50.00
Mar 1 Rs. 2,000 x 5% = 100 x 4 / 12 = 33.33
Jun 1 Rs. 3,000 x 5% = 150 x 1 / 12 = 12.50
TOTAL 281.25
Financial Accounting
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Lecture – 35
QUESTION
• A, B and C are three partners sharing profits in the ratio 40%, 30% and 30% respectively.
• You are required to prepare profit and loss appropriation account and extract from balance sheet, showing partners capital and current accounts from the following information:
Financial Accounting
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Lecture – 35
Net profit for the year Rs. 667,700 Opening balance of Capital accounts A Rs. 880,000, B
Rs. 660,000, C Rs. 396,000 Opening balance of Current Account A Rs. 40,920, B Rs.
20,812, C Rs. 15,774 Drawings during the year A Rs. 202,400, B Rs. 156,200,
C Rs. 151,800 Salaries to be credited B Rs. 44,000, C Rs. 77,000 Mark up on Capital @ 5% and drawings A Rs. 5,280, B
Rs. 3,960 and C Rs. 2,860
Financial Accounting
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Lecture – 35
SolutionA, B, C Partnership
Profit and Loss Appropriation Account
Particulars Note Rs. Rs.
Net Profit 667,700
Less: Partners Salaries – BC
44,00077,000 121,000
Less: Mark up on capital – A 1B 1C 1
44,00033,00019,800 96,800
Add: Mark up on drawing – ABC
5,2803,9602,860 12,100
Profit distributable among partnersLess: Partners Share – A 2
B 2C 2
184,800138,600138,600
462,000
462,000
Profit Carried to Balance Sheet 0
This slide will be
split in 2 parts
Financial Accounting
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Lecture – 35
A, B, C Partnership
Profit and Loss Appropriation Account
Particulars Note Rs. Rs.
Net Profit 667,700
Less: Partners Salaries – BC
44,00077,000 121,000
Less: Mark up on capital – A 1B 1C 1
44,00033,00019,800 96,800
Parts 1
Financial Accounting
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Lecture – 35
Add: Mark up on drawing – ABC
5,2803,9602,860 12,100
Profit distributable among partnersLess: Partners Share – A 2
B 2C 2
184,800138,600138,600
462,000
462,000
Profit Carried to Balance Sheet 0
Part 2
Financial Accounting
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Lecture – 35
Solution
A, B, C Partnership
Balance Sheet As At June 30, -----
Particulars Note Amount Rs. Amount Rs.
Financed By:
Capital – A B
C
880,000660,000396,000 1,936,000
Current Account – A 3 B 4
C 5
62,04076,25296,514 234,806
Partners’ Equity 2,170,806
Extract from Balance Sheet
Financial Accounting
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Lecture – 35
Notes
• (1) Interest on Capital
o A = 880,000 x 5% = 44,000
o B = 660,000 x 5% = 33,000
o C = 396,000 x 5% = 19,800
Financial Accounting
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Lecture – 35
Notes
• (2) Partners Share in Profit
o A = 462,000 x 40% = 184,800
o B = 462,000 x 30% = 138,600
o C = 462,000 x 30% = 138,600
Financial Accounting
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Lecture – 35
Notes
• (3) A’s current Account
A’s Current A/c
Debit side.
Drawing 202,400 Mark up on Drawing 5,280
Balance C/F 62,040
Credit side.
Balance B/F 40,920 Salary 0 Markup on Capital 44,000 Profit 184,800
Financial Accounting
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Lecture – 35
Notes
(4) B’s Current Account
B’s Current A/c
Debit side.
Drawing 156,200 Mark up on Drawing 3,960
Balance C/F 76,252
Credit side.
Balance B/F 20,812 Salary 44,000 Markup on Capital 33,000 Profit 138,600
Financial Accounting
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Lecture – 35
Notes
• (5) C’s current Account
C’s Current A/c
Debit side.
Drawing 151,800 Mark up on Drawing 2,860
Balance C/F 96,514
Credit side.
Balance B/F 15,774 Salary 77,000 Markup on Capital 19,800 Profit 138,600
Financial Accounting
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Lecture – 35
Admission Of A Partner
• At the time of admission of a partner: Assets and liabilities are revalued. Value of Goodwill is determined.
• The value (in monetary terms) of the reputation of the business is called GOODWILL. It is an intangible asset.