Study Note 4.2, Page 169-197

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169Financial Accounting

4.2. APPROPRIATION OF PROFITS

INTRODUCTION

According to section 4 of the Partnership Act, 1932 a Partnership is the relation betweenpersons w ho have agreed to share th e profits of a business carried on by all or any one of them

acting for all.

If we an alyse the definition we find th ree basic elemen t of a Partnership :

(1) It arises out of an agreement made by two or more persons;

(2) The agreement is mad e regarding sharing profits of a business;

(3) Such business is carried on by all or any one of them acting for all.

(a) Partnership is the result of an agreement. It does not arise from status.

(b) The agreement may be either verbal or in writing. There should be some terms and

conditions binding the Partnership.

(c) The existing law d oes not enforce that the terms of the Partnership m ust be in w rit-

ing. If written, the agreement is know n as Deed or Articles of Partnersh ip.

(d) For the formation of a Partnership m ore then one person is requires. For a banking

business the m aximu m number of Partners is 10, in other bu sinesses it is 20.

Partnership Deed

Mode of Approp riation : Among other details the deed contains the mode of app ropr iation of

profits (or losses) specially regarding interest on partners capitals, salary or commission, etc.payable to partners and the profit-sharing ratio.

In the absence of deed the following gu idelines shou ld be followed :

1. Every Partner should share profits equally [ Section 13 (b)].

2. No interest is to be allowed on Partners capitals [ Section 13 (c)].

3. No interest should be charged on the drawings of the Partners.

4. No salary is to be allowed to any partner.

5. Interest on advances made by partners should be provided @ 6% per annum . [Section

13(d)].

6. Every partner should be to have equal share in the property of the Partnership as per

Section 14.

Some Important Considerations

Partners Capitals

(a) Where the Partners decide and the agreement p rovides, the Capitals Accounts of the Part-

ners remain unchanged over years. In that case the Capital Accounts show the original

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(iii) In case the guaranteed am oun t (ii) is more, the excess shou ld be dedu cted from the

share of profit of the Partner given guarantee and calculated u nd er (i) above.

The some amoun t should be added with the original share of profit of the Partner to wh om the

guarantee has been given.

Illustration 1 :

X and Y are Par tners shar ing p rofit as 5:3. Z is the clerk of their bu siness getting a salary of Rs.

500 p.m. and a comm ission of 5% of the net profit after ded ucting his salary and commission.

Now , X guarantee that Z be made a Partners with 1/ 10th share of profit and nothong clse. If the

annu al profits is Rs. 1,32,000.

Steps :

(i) General Application of Profit Zs Share as clerk : Rs.

Salary 500 * 12 6,000

Commission 5/ 105 of [1,32,000 6,000] 6,00012,000

Balance of profit 1,20,000 Shared as : X =5/ 8 x 1,20,000 = Rs. 75,000 ;

Y = 3/ 8 x 1,20,000 = Rs. 45,000

(ii) Minimum guaranteed share of Z = 1/ 10th of Rs. 1,32,000 = Rs. 13,200

(ii) Shortfall = Rs. 13,200 Rs. 12,000 = Rs. 1200 to be d edu cted from share and add ed with Zs

share.

Final app ropr iation should be

Rs.

X : Rs. 75,000 Rs. 1200 73,800

Y : 45,000

Z : Rs. 12,000 + Rs. 1200 13,200

1,32,000

Xs Capital / Curr ent A/ c Dr. 1,200

To Zs Capital / Current A/ c 1,200

(Being Guaran teed share of profits provided

Guarantee given by firm :

(i) The share of profit of the guaranteed Partner is to be calculated according to the profit sharing ratio.

(ii) His minimum guaranteed amount is ascertained.

(iii) The higher of (i) and (ii) is given or credited to him.

(iv) The remaining profits are shared among the remaining Partners in their remaining ratio.

If the minimum guaranteed am oun t is more, the shortfall may be agreed to be in a ratio spe-

cially agreed u pon .

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Financial Accounting172

PARTNERSHIP ACCOUNTING

Illustration 2 :

The profit sharing ratio among X, Y and Z three 3: 2: 1. Z is guaran teed as m inimum p rofit of

Rs. 84,000 p.a. An nu al p rofit are Rs. 4,20,000. Show the d istribution.

Steps :(i) Normal Distribution :

X : 3/ 6 of Rs. 4,20,000 2,10,000

Y : 2/ 6 of Rs. 4,20,000 1,40,000

Z : 1/ 6 of Rs. 4,20,000 70,000

(ii) Zs guaranteed share is Rs. 84,000

(iii) Zs share shou ld be Rs. 84,000 (higher than Rs. 70,000)

(iv) Xs share [4,20,000 84,000] * 3/ 5 2,01,600

Ys share [4,20,000 84,000] * 2/ 5 1,34,400

Z 84,0004,20,000

Xs Capitable / Current A/ c Dr. 8,400

Ys Capitable / A/ c Dr. 5600

To Zs Capitable / Current A/ c 14,000

Prior Period Adjustments

Errors committed in making appropriations of profit or in measuring revenues or profits in

any earlier year may be located by a p artnership firm in a subsequen t year. Such errors m ay

result from w rong valuation of inventory, incorrect d istribution of profit, errors of misposting

or p rinciples, etc. Their ad justm ents shou ld be m ade w ith retrospective effect from the d ate ofinitiation of errors. The ad justm ent is usually mad e with the help of adjustm ent entries mad e

throu gh the p artners Capital Accoun ts. A Prior Period Adjustmen t Accoun t or Profit & Loss

Adjustment Account may be used to accommodate the adjustments and the balance of this

accoun t may be tran sferred either to this Profit & Loss Accoun t of the current year or to the

par tners capital accoun ts.

Also there may be situations involving personal paym ent of salary by one partner to another,

omission to charge Interests, etc.

Illustrations 3 :

A,B and C are p artners sharing p rofits and as 2 : 2 : 1. They get interest on their Cap itals at 5%

p.a and are charged @ 6% p.a on th eir Drawings.

A and B are paid salary @ Rs 250 per m onth respectively. A w ould be paid 6% interest on his

loan. A p aid Rs. 25,000 as loan on 1st July, 2007A, B and C w ithdrew Rs. 10,000 Rs. 8,000 and Rs.

6,000 respectively dur ing 2007. C is entitled to a comm ission a t 2% on total sales which amoun ted

to Rs. 3,46,000 during the year. On 1st Janu ary, 2007 the cap ital balances of A, B and C w ere Rs

1,00,000, Rs. 80,000 and Rs. 60,000 resp ectively. The net p rofit for the year is Rs. 1,00,000. Pre-

pare the Profit & Loss Appropr iation Accoun t and the Capital Accoun ts of partners.

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Solut ion :

Profit & Loss Appropriation Accoun t for the year end ed 31.12.2007

Dr. Cr.

Particu lars Amt Amt Particulars Amt Amt

Rs. Rs. Rs. Rs.

To Salary By Profit & Loss (Net Profit) 100,000

A [250 X 12] 3,000 Interest on Drawings :

B [150 X12] 1,800 4,800 @ 6% p.a. on an average

Commission C 6,920 of 6 months)

[2% of Rs. 3,46,000] A 300

Interest on Capital : B 240

A 5,000 C 180 720

B 4,000

C 3,000 12,000

Interest on Loan A 750

Share of pr ofits :

A [2/ 5] 30,500

B [2/ 5] 30,500

C [1/ 5] 15,250 76,250

1,00,720 1,00,720

Date Particulars A B C Date Particulars A B C

2007 Rs. Rs. Rs. 2007 Rs. Rs. Rs.

31.12 To Drawings 10,000 8,000 6,000 1.1 By balance b/ d 1,00,000 80,000 60,000

Interest on 300 240 180 31.12 Salary 3,000 1,800 -

Drawings

Balance c/ d 1,28,200 1,08,060 78,990 Commission - - 6,920

In terest on

Capital 5,000 4,000 3,000

Share of Profit 30,500 30,500 15,250

1,38,500 1,16,300 85,170 1,38,500 1,16,300 85,170

Capital Accoun ts

Dr. Cr.

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Illustration 4 :

A and B are par tners in a firm shar ing profits and losses equally. On 1st April, 2007 the balance

of their Cap ital Accounts w ere : A Rs. 50,000 and B 40,000. On th at d ate th e balances of their

Current Accoun ts w ere : A Rs. 10,000 (cred it) and B Rs. 3,000 (debit). Interest @ 5% p.a. is to be

allowed on the balance of Capital Accounts as on 1.4.2007 B is to get ann ual salary of Rs. 3,000wh ich had n ot been withd rawn. Drawings of A and B du ring the year w ere Rs. 1,000 and Rs.

2,000 respectively. The profit for the year ended 31st March, 2008 before charging interest on

capital bu t after cha rging Bs salary was Rs. 70,000. It is d ecided to tr ansfer 10 % of divisible

profit to a Reserve Account.

Prepare Profit & Loss Appropr iation Accoun t for the year end ed 31st March, 2008 and show

Capital and Cu rrent Accoun ts of the Partners for the year.

Solution :

Points to be noted :

Solution :

Dr. Profit & Loss Appropr iation Account for the year end ed 31.03.2008 Cr.

Particu lars Amount Amount Particu lars Amount Amount

To Salary - B 3,000 By Profit & Loss (Net 73,000

Interest on Capitals : Profit before Charging

A 2,500 Salary and Interest)

B 2,000 4,500

Reserve

[10% of 65,500] 6,550

Share of Profit

A [1/ 2] 29,475B [1/ 2] 29,475 58,950

73,000 73,000

(i) Profit before charging interest on Capital and Salary to B = Rs. 70,000 + Rs. 3,000= Rs. 73,000

(ii) Transfer to Reserve = 10 % of Divisible Profits.

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Capital Accoun ts

Dr. Cr.

Date Particulars A B Date Particu lars A B

Rs. Rs. Rs. Rs.

31.3.08 To balance c/ d 50,000 40,000 1.4.07 By Balance c/ d 50,000 40,000

CurrentAccounts

Dr. Cr.

Date Particulars A B Date Particu lars A B

Rs. Rs. Rs. Rs.

1.4.07 To balance b/ d - 3,000 1.4.07 By Balance c/ f 10,000 -

31.3.08 Drawings 1,000 2,000 31.3.08 Interest on Capital 2,500 2,000

31.3.08 Balance c/ d 40,975 29,475 Salary - 3,000

x Share of Profit 29,475 29,475

41,975 34,475 41,975 34,475

Calculation of Interest on D rawings

1. If the date of draw ings is mentioned , then calculate interest accord ing to the time.

2. If the date of draw ings is not mentioned , then calculate interest on the average of the time

period.i.e. if the accoun ting p eriod is for one-year, then interest for 6 months, and so on.

3. If unequal amounts are drawn at irregular intervals :

Illustration 5 : Accoun ting Per iod : Janu ary December. Interest @ 12% p.a

Month Amount D raw n (Rs.) Period (In Months) Product (Amount Period)

February 10,000 11 1,10,000

May 5,000 8 40,000

September 15,000 4 60,000

November 10,000 2 20,000

December 20,000 1 20,000

2,50,000

Interest = Product Rate of Interest 121

= 250012

1=

100

22,50,000

4. If equal amounts are draw n at a fixed d ate every month, throughout the accounting period :

(a) Drawn at the begining of every month

(b) Draw n at the middle of every month

(c) Drawn at th e end of every month

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Interest = Amount Draw n p .m Rate of Interest Time

Again, the Accoun ing Preiod m ay be for 12 months; 6 months; 3 months or etc. How to

calculate the time?

If the Accounting Period is for 12 months : (Janu ary December)

Begining of the month Middle of the month End of the month

One-Year 6-months 3-months One-year 6-months 3-months One-Year 6-months 3-months

January 12 6 3 11.5 5.5 2.5 11 5 2

February 11 5 2 10.5 4.5 1.5 10 4 1

March 10 4 1 9.5 3.5 0.5 9 3 0

April 9 3 6 8.5 2.5 4.5 8 2 3

May 8 2 7.5 1.5 7 1

June 7 1 6.5 0.5 6 0

July 6 21 5.5 18 5 15

August 5 4.5 4

September 4 3.5 3

October 3 2.5 2

November 2 1.5 1

December 1 0.5 0

78 72 66

Time Period :

Accounting Period At the Begining At the Middle At the End

12 months 78/ 12 72/ 12 66/ 12

6 months 21/ 12 18/ 12 15/ 12

3 months 6/ 12 4.5/ 12 3/ 12

N ote : It is a general tendency to learn the time period of 6.5, 6 & 5.5, irrespective ofund erstanding th e rationale behind on such.

Refer to he 1st Row (where the amount is drawn at the begining of every month and

throu ghou t the year), we find 78/ 12 = 6.5, 72/ 12 = 6 & 66/ 12 = 5.5.

The rationale is Rate of interest being mentioned as per ann um . But, if the rate of interest is

ment ioned p er mon th basis, then interest shall be calculated by considering the time p eriod for

78 mon ths, 72 month s & so on.

Illustration 6 :

Amount Draw n p.m. Rs. 1000. Rate of Interest @ 12% p.a.

If drawn at the begining of every mon th.

A/c Period Interest

12 m on ths = 78012

78=

100

121000

6 months = 72012

72=

100

121000

3 months = 66012

66=

100

121000

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Illustration 7 :

Rani, Rini and Rina are three partners in a firm. According to partnership d eed, the partn ers

are entitled to draw Rs. 800 per mon th. On 1st

day of every mon th Rani, Rini and Rina d rew Rs.700 Rs. 600 and Rs. 500 resp ectively. Profit during the year 2008 was Rs. 85,500 out of wh ich Rs

30,000 was tran sferred to Genera l Reserve. Rini and Rina are entitled to received salary of Rs.

3,000 and Rs. 4,500 p.a. respectively and Rani is entilled to received commission at 10 % of net

distributable p rofit after charging such commission. On 1st Janu ary, 2008 the balan ce of their

Capital Accounts were Rs. 50,000 Rs. 40,000 and Rs. 35,000 respectively. Interest on Capital

provided at 8 % p.a.

You are requ ired to show Profit & Loss Appr opriation Accoun t for the year ended 31st Decem-

ber, 2008 and Cap ital Accoun ts of Partners in the book of the firm.


1. A partner was allowed to d raw Rs. 800 per deed in this case, none of the Partners draw

more than that.

2. Interest on Drawings should be calculated as 1st months drawings for 12 months, for

second m onths drawings for 11 mon ths and so on.

Alternatively, 6.5 month interest is to be calculated on total drawings of each partners. (See

If draw n at th e midd le of every month.

A/c Period Interest

12 m onth s = 21012

21=

100

121000

6 m onths = 18012

18=

100

121000

3 m onths = 15012

15=

100

121000

If draw n at the end of every month.

A/c Period Interest

12 m onth s = 6012

6=

100

121000

6 m onths = 4512

5.4=

100

121000

3 m onths = 3012

3=

100

121000

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theoretical discussion regard ing interest on d rawings.)

Ripas tota l d raw ings = 700 x 12 = Rs. 8,400; Int. on Draw ings = 8,400 x 10/ 100 x 13/ 24 = Rs. 455

Rinis tota l draw ings = 600 x 12 = Rs. 7,200; Int. on Drawings = 7,200 x 10/ 100 x 13/ 24 = Rs. 390

Rimas tota l draw ings = 500 x 12 = Rs. 6,000; Int. on Draw ings = 6,000 x 10/ 100 x 13/ 24 = Rs. 325

Solution :

Dr. Profit & Loss Appropriation Account for the year ended 31.12.2008 Cr.

Particulars Amount Amount Particulars Amount Amount

Rs. Rs. Rs. Rs.

To General Reserve 30,000 By Profit & Loss 85,500

(Net Profit )

Salary - Rini 3,000 on Drawings :

Rina 4,500 7,500 Rani 455

Interest on Capital (at 8%) Rini 390

Rani 4,000 Rina 325 1,170

Rini 3,200

Rina 2,800 10,000

Commission-Rani-(Note) 3561

Share of Profit

Rani [1/ 3] 11,870

Rini [1/ 3] 11,870

Rina [1/ 3] 11,869 35,609

86,670 86,670

Capital Accoun ts

Dr. Cr.

Date Particulars Rani Rini Rina Date Particulars Rani Rini Rina

2008 Rs. Rs. Rs. 2008 Rs. Rs. Rs.

To Drawings 8,400 7,200 6,000 By Balance b/ d 50,000 40,000 35,000

31.12 Interest on 455 390 325 31.12 Interest on 4,000 3,200 2800

Drawings Capital

Balance c/ d 60,576 50,480 47,844 Salary - 3,000 4,500

Commission 3,561 - -

Sh ar e of Profit 11,870 11,870 11,869

69,431 58,070 54,169 69,431 58,070 54,169

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Illustration 8 :

Calculation of Interest on Draw ings mad e uniformly at the end of each quarter.

On January 1, 2008, Amethyst and Emerald comm enced business as partn ers introdu cing capi-

tals of Rs. 20,000 and Rs. 30,000 to their respective accounts. The partnership deed, provided

inter alia that:

(i) Profit/ Losses shall be shared in the ratio of 2 : 3 as between Amethyst and Enerald.

(ii) Partners shall be entitled to interest on Capital at the commencement of each year at 6 %

p.a.; and

(iii) Interest on Drawings shall be charged at 8 % p.a.

During the year ended 31.12.2008 the firm made a profit of Rs. 19,280 before adjustment of

interest on Capital and drawings. The Partners w ithdrew d uring the year Rs. 3,000 each at the

end of every quarter comm encing from 31.3.2008.

You are required to prepare a Profit Loss Approp riation A/ c and show the entries therein for

distribution of Profit.

Show also the Capital A/ cs of the par tners for the year.


Each Partn er d rew Rs. 3,000 at the end of each quarter or Rs. 12,000 during th e year. But inter-

est on draw ings for each of them shou ld be :

(a) On 3,000 draw at the end of 1st Quarter Interest for 9 months = 3,000 x 8/ 100 x 9/ 12 = Rs.

180

(b) On 3,000 draw at the end of 2nd Quarter Interest for 6 months = 3,000 x 8/ 100 x 6/ 12 = Rs.

120

(c) On 3,000 draw at the end of 3rd Quarter Interest for 3 months = 3,000 x 8/ 100 x 3/ 12 =

Rs. 60

(d) On 3,000 draw at the end of 4th Quarter No interest

* Total Interest on Draw ings for each partner = Rs. 180 + Rs. 120 + Rs. 60 = Rs. 360

Working Notes :

Rs.

N et Profit before Commission [86,670 30,000 -7,500 10,000] 39,170

Less : Rinas Commission = 10/ 100 of 39,170 (approx) 3,561Share of Profit 35,609

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llustration 9 :

Azu and Biju a re partn ers firm contribu ting Rs. 25,000 and Rs. 20,000 respectively as capitals

and sharing p rofit as Azu 3/ 5 th and Biju 2/ 5 th. Interest on Capitals is to be allowed at 10 %

per annu m. The net profit for year end ed 31st March, 1996 amou nts to Rs. 3,600 before making

any allowan ce for interest. Show the ap propriation of profit.

Solution :

Azu (Rs.) Biju (Rs.) Total (Rs.)

Interest on Capital @ 10 % p.a. 2,500 2,000 4,500

The p rofit are Rs. 3,500.

Unless specifically agreed up on, interest on capitals should be allowed only u p to Rs. 3,600

should be shared in Capital Ratio [25,000 : 20,000 or 5 : 4]

Solution :

Dr. Profit & Loss Appropria tion Account for the year ended 31.12.1995 Cr.


Rs. Rs. Rs. Rs.

To Interest on Capital : By Profit & Loss (Net Profit) 19,280

(at 6% p.a) Interest on Drawings :

Amethyst 1,200

Enerald 1,800 Amethyst 360

Share of Profit 3,000 Emerald 360 720

Amethyst [2/ 5] 6,800

Emerald [3/ 5] 10,200 17,000

20,000 20,000

Capital Accoun ts

Dr. Cr.

Date Particulars Amrthyst Emerald Date Particulars Amrthyst Emerald

Rs. Rs. Rs. Rs.

31.12.08 To Drawings 12,000 12,000 1.1.08 By Bank 20,000 30,000

31.12.08 Drawings 360 360 (Capital Introduced)

Balance c/ d 15,640 29,640 31.12.08 Interest on Capital 1,200 1,800

Share of Profit 6,800 10,20028,000 42,000 28,000 42,000

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Illustration 10 :

Sharing of p rofit on Effective Capital Ratio.

Sachin, Sanat an d Sohali Started a partn ership firm on 1.1.2008. Sachin introd uced Rs. 10,000

on 1.1.2008 and furth er int rod uced Rs. 5,000 on 1.7.08 Sanat int rod uced Rs. 20,000 at first on

1.1.08 but w ithd rew Rs. 8,000 from the business on 31.7.08. Sohali int rod uced Rs. 12,000 at th e

beginning on 1.1.08, increased it by Rs. 4,000 on 1.6.08 and red uced it to Rs. 10,000 0n 1.11.08.

During the year 2008 they made a net profit of Rs. 56,100. The partners decided to provie

interest on their capitals at 12 % p.a. and to d ivide the balance of profit in their effective capital

contribution ratio.

Prep are the Profit & Loss App rop riation Account for the year end ed 31.12.08.

Solution

(a) Calculation of effective capital contribution :

Product(R)

Sachin : Rs. 10,000 for 6 months (1.1.to 1.7) 60,000

Rs. 15,000 for 6 months (1.7.to 31.12) 90,000

1,50,000

Sanat : Rs. 20,000 for 7 months (1.1.to 31.7) 1,40,000

Rs. (20,000 8,000) for 5 months (1.8.to 31.12) 60,000

2,00,000

Sohali : Rs. 12,000 for 5 months (1.1.to 1.6) 60,000

Rs. (12,000 + 4,000) for 5 months (1.6.to 1.11) 80,000

Rs. 10,000 for 2 months (1.11.to 31.12) 20,000

1,60,000

Azu s share = 5/ 9 x Rs. 3,600 = Rs. 20,000 ; Bijus share = 4/ 9 x Rs. 3,600 = Rs. 1,600

If the partners have agreed upon provision for interest on capital irrespective of profits, the

distribution should be

Dr. Profit & Loss Appr opr iation Account for the year end ed 31.12.2008 Cr.

Particulars Amt Amt Particu lars Amt AmtRs. Rs. Rs. Rs.

To Interest on Capital : By profit & Loss (Net Profit) 3,600

Azu 2,500 Share of Loss :

Biju 2,000 4,500 Azu [3/ 5] 540

Biju [2/ 5] 360 900

4,500 4,500

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Profit Sharing Ratio = Effective Capital Ratio = 15 : 20 : 16

(b) Interest on Capitals = Produ ct x Interest on Capital x 1/ 12

Sachin =1,50,000 x 12/ 100 x 1/ 12 = 1,500; Sanat = 2,00,000 x 12/ 100 x 1/ 12 = 2,000; Sohali =

1,60,000 x 12/ 100 x 1/ 12 = 1,600Dr. Profit & Loss Appr opr iation Account for the year end ed 31.12.1996 Cr.

Interest on Capitals omitted to be charged.

Illustration 11 :

A, B, C and D are p artn ers shar ing p rofit and losses in the rato of 4 : 3 : 3 : 2 Theirrespective capitals on 31st March, 2008 were Rs.3,000 Rs. 4,500 Rs. 6,000 and Rs. 4,500. After

closing and finalizing the accoun ts it was found that interest on capital @ 6 % per annu m was

omitted. Interest to altering the signed accounts it was d ecided to pass a single adjusting entry

on 1st April, 2008 crediting or debiting the respective partners accounts. Show the Journal

Entry.

Statement showing Rectification of Profits

Particu lars Amount Amount Particu lars Amount Amount

Rs. Rs. Rs. Rs.

To To Interest on Capital : By Profit & Loss 56,100

(Net Profit)

Sachin 1,500

Sanat 2,000

Sohali 1,600 5,100

Share of Profit :

Sachin [15/ 51] 15,000

Sanat [20/ 51] 20,000

Sohali [16/ 51] 16,000

51,000

56,100 56,100

Partner Interest on Capital Amount Wrougly (Excess)/ Deficit Adjust

@ 6%p.a. not provided distributed in PSR

Rs. Rs. Rs. Rs.

A 180 360 (180) Debit

B 270 270 - -

C 360 270 90 Credit

D 270 180 90 Credit

1,080 1,080 -

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The Cap ital Accoun ts of Adhar and Bhu dhar Stood at Rs. 40,000 and Rs. 30,000 Respectively

after the necessary adjustm ent in respect of the drawings and th e net profit for the year ended

31st December, 1995. It was subsequen tly ascertained that 5% p.a. interest on Cap itals and d raw -

ings was not taken into accoun t in arriving at the net profit. The draw ings of the par tners hadbeen : Adhar Rs. 1,200 at the end of each qu arter and Bhu dhar Rs. 1,800 at the end of each half

year.

The profit for the year as adjusted amounted to Rs. 20,000. The partners share profit in the

proportion of Adhar 3/ 5 and Bhudhar 2/ 5

You are requ ired to pass journ al entries and show the ad justed capital accounts of the partners.

Working Notes :

(i) In terest Drawings

Dr. Cr.

Date Particu lars L.F Amount Amount

Rs. Rs.

1.4.08 As Current A/ c ..Dr. 180

To Cs Current Account 90

To Ds Current Account 90

[Interest on Cap ital not provided

@ 6% p.a. now rectified]

Adhar Bhudhar

Rs. Rs.

On 1,200 drawn at the end of 1st quarter [1,200 x 5/ 100 x 9/ 12] 45

On 1,200 drawn at the end of 2nd quarter [1,200 x 5/ 100 x 6/ 12] 30

On 1,200 drawn at the end of 3rd quarter [1,200 x 5/ 100 x 3/ 12] 15

On 1,200 drawn at the end of last quarter Nil

90

On 1,800 drawn at th e end of 1st half year [1,200 x 5/ 100 x 6/ 12] 45

On 1,800 drawn at the end of 2nd half year Nil

45

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Solution :

Adjustment Entry :

Journal Dr. Cr.

Date Particulars L.F. Amount Amount

Rs. Rs.

1.1.2009 Adhars Capital Account .Dr. 121To Bhudhars Capitals Account

[Adjustment made for Interests on Capital 121

and on Drawings

not provided and th e net amoun t wrongly

shared as Profits]

(ii) Statem ent sh owing Rectification of Profits

Adhar Bhudhar

Rs. Rs.

(A) Capital as on 31.12.08 40,000 30,000Add : Drawings 4,800 3,600

Less : Share of Profits already Credited 12,000 8,000

Capital as on 1.1.08 32,800 25,600

Add : Interest on Capital @ 5% 1,640 1,280

Less : Interest on Drawings 90 45

Add : Share of Profits = 17,215

[20,000 - 1,640 - 1,280 + 90 + 45] 10,329 6,886

Less : Drawings 4,800 3,600

(B) Adjusted Capital as on 31.12.08 39,879 30,121

Difference of Capital [A-B} 121 121

(Excess) (Deficit)

Capital Accoun ts

Dr. Cr.

Date Particulars Adhar Bhudhar Date Particu lars Adhar Bhudhar

Rs. Rs. Rs. Rs.

1.1.09 To Bhudhars 121 1.1.09 By balance b/ f 40,000 30,000

Capitals

Balance c/ f 39,879 30,121 Ashars Capital 121

40,000 30,121 40,000 30,121

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The entries were d uly passed in the books but the following d iscrepancies were subsequen tly

discovered :

(i) Interest on capital should have been allowed at 6% p.a. and that on drawings should have

been charged at 8% p.a.

(ii) Dhruva w as not entitled to get any salary but Rohini was to get a monthly salary of Rs.

250.

(iii) Profits should have been shared in opening capital ratio.

You are requ ired to redistribute the profits correctly.

Solution :

Calculation of Net Am ounts already Cred ited to each Partners Capital

Dhruva Rohini

Rs. Rs.

Amounts Credited : Interest on Capital 3,200 2,400

Salary 4,800

Share of Profit 15,010 15,010

23,010 17,410

Less : Amount debited Interest on drawings 240 180

22,770 17,230

Adjustment for wrong distribution of Profi ts.

Illustration 12 :

Profit & Loss Appropr iation Account for the year end ed 31st March 2008Dr. Cr.

Particulars Amt Rs. Particulars Amt Rs.

To Interest on Capital : By Net Profit 40,000

Dhruva 8% of Rs. 40,000 3,200 In terest on Drawings (calcu la ted

Rohini 8% of Rs. 30,000 2,400 on average of 6 m onths)

Salary Dhruva 4,800 Dhruva 6% of Rs. 8,000 240

Share of Profit : Dhruva [1/ 2] 15,010 Rohini 6% of Rs. 6,000 180

Rohini [1/ 2] 15,010

40,420 40,420

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Illustration 13 :

Cross Guarantee

Susm ita and Aishwarya were p artners of a Beauty Parlou r sharing p rofit and Losses as 3 : 2

Manp ereet who had been runn ing a similar business as a beauty consultant requested Susmita

and Aishwarya to form a new par tnership to w hich all of them agreed on the conditions that :

1. They would share the profits and losses 3 : 2 : 1.

2. Susmita and Aisharwya guranteed to the effect that Manpreets share of profit would not

be lower th an Rs. 22,500 per an nu m.

3. Manpreet guaranteed that gross fees earned by her for partnership business shall be at

least equal to her average gross fees of the preceeding three years when she was doingbusiness on her ow n. Her average gross fees were Rs. 37,500.

The profit of the new p artnership for the first accounting year end ed on 31st March, 2008 was

Rs. 1,12,500 and the gross fees earned by Manp reet for the firm were Rs. 24,000.

Show the d istribution of the above profit in a Profit & Loss Approp riation Accoun t for the year

ended 31st March, 2008.

Solution : Susm ita , Aisharwya & Manpreet

Dr. Profit & Loss Appropr iation Account for the year end ed 31.3.08 Cr.


Rs. Rs. Rs. Rs.

To Partnerships By Profit + Less A/ c 1,12,500

Capital A/ cs : (Net Profit)

(Share of Profit) [Note 2 ] Manpreets Capital A/ c 13,500

Susmita 62,100 [Note 2]

Aisharwya 41,400

Manpreet 22,500 1,26,000

1,26,000 1,26,000

Dr. Profit & Loss Appropriation Account for the year end ed 31.12.2008 Cr.

Particu lars Amount Amoun Particu lars Amount Amount

Rs. Rs. Rs. Rs.

To Interest on Capital : By Dhruvaa Capital 22,770

Dhruva [6% of 40,000] 2,400 (Amount written back)Rohini [6% 0f 30,000] 1,800 4,200 Rohinis Cap itals

Salary Rohini 3,000 (Amount written back) 17,230

[250 x 12]

Interest on Drawings :

[@ 8% p.a. on average

6 months]

Dhruva 320

Share of Profit : Rohini 240 560

Dhruva [4/ 7] 19,063

Rohini [3/ 7] 14,297 33,360

40,560 40,560

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Note :

1. Manp reets shortfall in gross fees earned by her for the partnersh ip = Rs. 37500 Rs.

24,000 = Rs. 13,500. This am ount is to be p aid by her out of her Cap ital Account.

Manp rcets Cap ital A/ c Dr. 13,500

To Profit Loss Approp rition A/ c 13,500

2. Manp reets share of actual profit =1/ 6 of Rs. 1,26,000 = Rs. 21,000. As amount gu aran-

teed to her is Rs. 22,500.

Deficit = Rs. 1,500 to be shared by Susmita and Aishw arya as 3 : 2.

Final Distribution of Profit shou ld be :

Susmita = 3/ 6 of 1,26,000 3/ 5 of 1,500

= 63,000 900

= Rs. 62, 100;

Susmitas Cap iital A/ c Dr. 900 Aishw arya = 2/ 6 of 1,26,000 2/ 5 of 1,500

Aishw aryas Capital A/ c Dr.600 = 42,000 600 = Rs. 41,400;

To Manpr eets Cap ital A/ c 1,500 Manpr eet = 1/ 6 of 1,26,000 + 1,500

= 21,000 + 1,500

= Rs. 22,500.

Illustration 14 :

Guarantee with Retrospective e ffect

Kalyani and Ranu commenced bu siness on 1st July, 2005 as partners w ith cap itals of Rs. 1,80,000

and Rs. 1,20,000 respectively. The capitals would remain fixed and carry interest at 10% p.a.

profit and losses were to be shared in prop ortion to their capitals.

They appointed Anita as their Manager on 1st July, 2005 at a salary of Rs. 9,600 per ann um plu s

a bonu s of 5% of the net p rofits after charging such bonu s and interest as a partner from the

comm encemen t of the business. She had to d eposit Rs. 80,000 as security, carrying an interest

@ 12%p.a. It was ag reed th at she w ould be entitled to one-fifth share of the p rofits and her

security dep osit wou ld be treated as her capital carrying interest @ 10% p.a. It w as further

agreed that this new arrangement should not result in Anitas share for any of these years

being less than wh at she had alread y received und er the original agreement and terms of her

appointment.

The profits before charging Anitas bonus and interest on Capital of the partners or giving

effect to the new arrangemen t w ere (a) for the year 2005-06 - Rs. 60,000; (b) for the year 2006

07 Rs. 1,20,000; (c) for the year 2007-08 Rs. 1,60,000

Show by a single journ al entry to give effect to the new arrangement with explanatory compu -

tation.


1. As a Manager, Anita received (a) bonus @ 5% on Net Profits after charging such bonus

and interest on cap ital at 10% p.a. to Kalyani an d Ranu (b) Salary Rs. 9,600 p .a. (c) Interest

on security d eposit at 12% p.a.

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2. As a Partner Anita is entitled to (a) Interest on Capital at 10% p.a. (b) 1/ 5th of profit after

provid ing interest on capital at 10% p.a. to all partners includ ing herself.

3. If total du es of Anita under (2) above is more than that und er (1) above, she should get the

difference. But if such dues under (1) above is more, she would not refund the excess

already received.

(2) Calculation of Distributable profit und er the new arrangement

2005-06 2006-07 2007-08

Rs. Rs. Rs.

Net p rofits given (after charging interest on security d eposit

and Anitas salary but before charging interest on capitals) 60,000 1,20,000 1,60,000

Add : Anitas Salary and Interest on Deposit no more

payable [9,600 +9,600] 19,200 19,200 19,200

79,200 1,39,200 1,79,200

Less : Interest on Capitals to all partners @ 10% of 38,000 38,000 38,000

[1,80,000 + 1,20,000 + 80,000]

Distributable Profits 41,200 1,01,200 1,41,200

Anitas Share of Profit = 1/ 5th of Distributable Profit 8,240 20,240 28,240

(1) Solution :

Workings Calculation of Anitas Dues as Manager

2005-06 2006-07 2007-08

Rs. Rs. Rs.

Salary 9,600 9,600 9,600

Interest on Security Deposit : 12% of 80,000 9,600 9,600 9,600

Bonus 5/ 105 of profit after charging interest on capitals

of Kalyani and Ranu

2005-06 = 5/ 105 of (60,000 - 10% of 3,00,000) 1,429

2006-07 = 5/ 105 of 1,20,000 10% of 3,00,000) 4,286

2007-08 = 5/ 105 of 1,60,000 10% of 3,00,000) 6,190

20,629 23,486 25,390

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Journal

Dr. Cr.

Date Particulars L.F Amount Amount

Rs. Rs.

Kalyanis Current A/ c [3/ 5 of 15,604]Dr. 9,362

Ranus Current A/ c [2/ 5 of 15,604]Dr. 6,242

To Anitas Current A/ c

[Adjustments made through Partners Current 15,604

A/ cs to the to new arrangement regarding profits]

As capitals remained fixed and interest was calculated every year on these fixed capitals,the

necessary adjustment has been mad e through current accoun ts.

Illustration 15 :

Adjusments w ithout alterat ion of book values

R,S and T are partn ers of a firm, shar ing p rofits and losses as 5 : 3 : 2. Their Balance Sheet as

on 31st March, 2007 stood as follows :

(3) Difference in Paym ents to Anita

2005-06 2006-07 2007-08

Rs. Rs. Rs.

A. Anitas Dues a s Partner :

Interest on Capital @ 10% of 80,000 8,000 8,000 8,000

Share of Profit [as perworkings 2] 8,240 20,240 28,240

16,240 28,240 36,240

B. Anitas Dues as manager [as perworkings 1] 20,629 23,486 25,390

Difference Payable to Anita - 4,754 10,850

Total 15,604

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From 1st April, 2007 the par tners decided to change their p rofit sharing ratio as 2 : 1 : 2 in p lace

of their p revious ratio 5 : 3 : 2 and the following ad justm ents were agreed u pon :

(1) The Reserve for Bad Debts was to be raised to 10%; (2) Furnitu re was to be appreciated byRs. 5,200.

They did not w ant to alter the book values of the assets and reserve but recorded the change by

passing one single journ al entry.

The profit for the year ended 31st March, 2008 showed a net p rofit of Rs. 22,900.

You are requ ired :-

1. To show the single journal entry adjusting the partners capital on 1st April, 2007, and

2. To prepare the Profits and Loss Account for the year ended 31st March, 2008 after takinginto accoun t the following : (i) Interest on Capita l at 5% p.a.; (ii) Interest on Ss loan an d

(iii) Transfer 25% of the d ivisible profit to Reserve Fund after changing such transfer.

Working Notes :

1. Calculation of Net Effect of the adjustments

Rs.

Profit d ue to increase of Value of Furnitu re

General Reserve

Less : Additional Reserve for Bad Debts (Provision)

[10% of (Rs.22,000-Rs.2000)]

Profit

Liabilities Rs. Assets Rs.

Sundry Creditors 25,000 Cash at bank 10,000

General Reserve 20,000 Sundry Debtors 22,000

S Loan Account 15,000 Less: Reserve for Bad Debts 2,000 20,000Capital Account : Furniture 10,000

R 25,000 Machinery 35,000

S 10,000 Stock 25,000

T 5,000

1,00,000 100,000

5,200

20,000

25,200

200

25,000

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Solution :

Books o f R, S & T

Journal Entry

Date Particulars L.F. Amount Amount

1.4.07 Ts Capital A/ c ...Dr. 5,000

To, Rs Capital 2,500

Ss Capital 2,500

(Adjustment made due to change in profit sharing ratio)

2. Adjustment of Capital as on 01.04.07

Rs. Rs. Rs.

Profit Rs. 25,000 shared in old ration 5 : 3 : 2 12,500 7,500 5,000

Loss Rs. 25,000 shared in new ratio 2 : 1 : 2 (10,000) (5,000) (10,000)

Net Effect 2,500 2,500 (5,000)

Capitals as on 31.03.07 25,000 10,000 5,000

Adjusted Capital on 1.4.07 27,500 12,500

Dr. Profit & Loss Account for the year ended 31st March, 2008 Cr.


Rs. Rs. Rs. Rs.

To Interest on Capital : By, Profit & Loss 22,900

R - [5% of 27,500] 1,375 A/ c Net Profit

S - [5% of 12,500] 625 2,000

Interest on Ss loan 900

[6% of 15,000]

Reserve Fund 4,000

[25/ 125 x (22,900 2,900)]

Shares of Profit :

R [ 2/ 5 ] 6,400

S [ 1/ 5 ] 3,200

T [ 2/ 5 ] 6,400 16,000

22,900 22,900

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Illustration 16 :

Adjustment of Profit s A t ypical problem

Agni and Bani started a p artnership on Ap ril 1, 2005 with respective capital contributions of

Rs. 60,000 and Rs. 20,000. On 31.03.2007 they prepared the following Trial Balance for theirbusiness :

Dr. (Rs.) Cr. (Rs.)

Stock 46,000 -

Machinery 46,500 -

Debtors and Creditors 58,000 12,000

Provision for Depreciation 9,500

Cash and Bank 21,000 -

Capitals : Agni - 1,04,750

Bahni - 45,250

1,71,500 1,71,500

The transactions recorded in the Capital Accounts during these two years were interest on

capital at 10% p.a. on initial investmen ts and allocation of incomes. On 31.03.07 it was furth er

d iscovered that total d raw ings of Rs. 21,000 by Agn i and Rs. 15,000. By Bahn i had been w rongly

treated as business expenses. The Partnership Accoun ts were to be correctly adjusted.

On 1.4.2007 Agni and Bahni offered par tnership to Clara and Dela on the following term s :

1. The new partners should introduce capitals as Clara Rs. 50,000 and Dela Rs. 40,000.

2. All partners would be entitled to interest on opening balance of the new p artnership @

10% p.a.

3. Agni and Bahni are to receive salaries for their special services @ Rs. 10,000 p.a. and Rs.

6,000 p.a.

4. The minimu m d ues of Clara and Dela wou ld be Rs. 10,000 p.a. and 12,000 p.a. respec-

tively (inclusive of their interest on capital)

5. Profits after charging Partners salaries and interests on capitals would be shared as 3 : 3

: 2 : 2 among Agni, Bahn i, Clara and Dela.

You are required to show : (1) Correct Capital balan ce of Agni and Bahn i on31.03.07 (2) the n et

income that must be earned by the new firm during the year ended 31st March 2008 so that

Agnni and Bahni receive equal shares of Profit and Agni receives an aggregate of Rs. 30,000

inclusive of interest on Cap ital Salary an d Share of Profit.

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Solution :

Notes :

1. Profits already credited

Agni Bahni

Rs. Rs.

Opening Capitals 60,000 20,000

+ In terest on Cap ital for 2 years @ 10% p .a. on or igin al cap itals 12,000 4,000

+ Profits Credited (Balance) 32,750 21,250

Closing Balance 1,04,750 45,250

Therefore Total Profit Cred ited = 32,750 + 21,250 = Rs.54,000

Therfore rectified Pr ofit = Profits Credited + d raw ings treated a s an expense

= 54,000 + 21,000 + 12,000 + 15,000 = 90,000/ -

2. Sharing Profits

Agni Bahni

Rs. Rs.

Correct Profit equally divided [ 90,000 as 1 : 1 ] 45,000 45,000

Profits wrongly credited 32,750 21,250

Adjust ment Required 12,250 23,750

Stat ement show ing correction of Capit als of Agni and Bahni on 31.03.08

And correction of Profit s upto that dat e

Correction of Capital Balance Agni Bahni

Rs. Rs.

Balance as per Trial Balance on 31.3.07 1,04,750 45,250Less : Drawing 21,000 15,000

83,750 30,250

Add : Adjustment for Profit [ Note 1 & Note 2 ] 12,250 23,750

Adjusted Capitals on 31.3.07 96,000 54,000

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Statement Showing Calculation of Minimum Income to be earned during the year

ended 31.3.08

Amt Amt

Rs. Rs.

Minimu m Am ount Payable to :

Agni : Interest on Capital [ 10% of 96,000 ] 9,600

Salary 10,000

Share of Profit [ Balancing amount to make total dues Rs. 30,000 ] 10,400 30,000

Bahni : Interest on Capital [ 10% of 54,000 ] 5,400

Salary 6,000

Share of Profit [ Balancing Amount to make total du es Rs. 30,000 ] 10,400 21,800

Clara : Interest on Capital [ 10% of 50,000 ] 5,000

Share of Profit [ Balancing Amount to make total Rs. 10,000 ] 5,000 10,000

Dela : Interest on Capital [ 10% of 40,000 ] 4,000

Share of Profit [ Balancing Amount to make total Rs. 12,000 ] 8,000 12,000

Total Profit s Required t o be earned 73,800

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EXERCISE

1. In which set of business organization Profit and Loss approp riation Account is to be main-

tained?

2. What do you mean by guranteed Partnership?

3. In absence of partnership deed which item will be reflected in Profit and Loss appr opria-

tion Accoun t

Problem 1.

Guarantee with retrospective ef fect

A and B comm enced business on 1st April, 2005 as partn ers w ith cap itals of Rs. 1,20,000 and Rs.

80,000 respectively. The capitals rem ained fixed carrying interest @ 7% per ann um . Profits

were shared in prop ortion to their capitals.

They app ointed C as their manager on 1st April, 2005 at a salary of Rs. 4,800 per ann um plu s a

bonus of 5% of the p rofits after charging su ch bonus an d interest on capital. C had to deposit

on 1.4.05 Rs. 40,000 as secur ity deposit carrying in terest at 8% per ann um.

In March, 2008 it was settled that C should be treated as partner from 1st April, 2005. It was

agreed that h e should be entitled to 1/ 6th of the profits and his security deposit would be

treated as his capital carrying interest at 7% instead of the 8% he had received. It was furth er

agreed that this new arrangement should not result in Cs share for any of these years being

less than w hat he h ad received u nder the original agreement and terms of his app ointment.

The profits before charging Cs bonu s and interest on capital or giving effect to th e new ar-

rangem ent w ere : (a) for the year ended 31st March, 2006 Rs. 30,000; (b) for the year en ded 31stMar ch, 2007 Rs. 58,000; (c) for th e year ended 31st March, 2008 Rs. 83,000.

Show the necessary Journal entries to give effect to the new arrangement with explanatory

computation.

[Ans : As Current A/ c Dr. 2,872

Bs Current A/ c Dr. 1,914

To Cs Current A/ c 4,786]

Problem 2.Conversion of method of accounting from Cash Basis to Mercantile Basis w ith retrospective

basis.

P, Q and R are partn ers of a firm of consultants since 1st Janu ary, 2005 shar ing p rofits and losses

as 3 : 2 : 1. They mainta in their accoun ts und er cash basis after allowing salaries as P Rs. 1,500

per mon th, Q Rs. 1,200 per month and R Rs. 300 per m onth . Besides Rs share is guaran teed to

a fixed min imu m of Rs. 6,000 (includ ing h is salary).

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In 2008 they d ecide to change the method of accounting to mercantile basis w ith retrospective

effect. Relevant pieces of information are :

Year Profit under cash basis before Outstanding Expenses on the Fees earned

charging partners salaries closing date of the year but not receivedon the closing

date of the year

Rs. Rs. Rs.

2005 50,000 10,000 14,500

2006 61,000 9,000 16,500

2007 40,000 10,500 8,000

Pass a single Journ al Entry ad justing th e par tners accoun ts to give effect to th e above change.

[Ans : Adjustment Entry :

As Capital (Dr.) 2,210 Outstanding Expenses (Cr.) 10,500

Bs Capital (Dr.) 1,473 Cs Capital (Cr.) 1,183

Problem 3.

S, T and O w ere partn ers shar ing p rofits as 3 : 2 : 1. Their capitals on 31st December, 1995 stood

as S Rs, 45,000, O Rs. 15,000 and T Rs. 15,500 after ad justm ents of net p rofit Rs. 18,000 for the

year ending that date and their drawings of Rs. 6,000 Rs. 4,000 and Rs. 2,000 respectively. It

was discovered however that while ascertaining the profit the accountant did not take into

consideration th e following m atters :

1. Interest @ 6% p.a. on Capital as on 1.1.2008

2. O was entitled to a salary of Rs. 2,000 per annu m of which Rs. 490 was unp aid.

3. Till 31.12.2007 partners were sharing profits equally and that goodwill was valued at Rs.

12,000 on th e d ate of re-ascertaining the p rofit the accoun tant did not t ake into consider-

ation the following m atters :

4. A loan of Rs. 5,000 from T as brought forward from 2007 carrying interest at 8% p.a. was

merged into his capital on July 1, 2008. No interest on loan was, however, charged to

profit & loss account.

You are requ ired to w ork out a Profit & Loss adjustment account and show the journ al entries

necessary for re-adjustment of capital accounts and the revised capital accounts of partners

assuming that all their dues are to be adjusted in Capitals Accoun ts.

[Hints : See App ropriation of Profits Wrong Distribution]

[Ans : Revised Profit 12,720; Cap ital Balan ces for cha rgin g interest S Rs. 46,000, T

Rs. 12,000; O Rs. 18,500;

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Revised Capitals : S Rs. 49,120, T Rs. 18,160, O Rs. 20,220

T A/ c Dr 840 Goodwill A/ c . Dr. 12,000

S A/ c (Cr.) 120 S, T & O each (Cr.) 12,000

O A/ c (Cr.) 720 (Rs. 4,000 each)

Problem 4.

Apportionment between Pre-admission and Post-admission Profits

A and B are partners in a firm sharing profit & losses in the ratio of 3 : 2, with capitals of Rs.

1,20,000 and Rs. 40,000 resp ectively. The interest on capital @ of 5% p.a. They ad mit C into

par tnership w ith effect from 1st October, 2008 on th e following cond itions :

(i) That C is to bring in Rs 15,000 as premium for goodwill, which w ill be withdraw n by A &

B in their old profit-sharing ratio.

(ii) That C is to contribute Rs. 22,400 to the firm as his share of capital.

(iii) That the partners capitals will carry interest at 5% p.a.

(iv) That the profit earned d uring 2008 will be apportioned between the pre-adm ission and

post-adm ission period on the basis of turn over.

The profits for the year end ing 31st December, 2008 before charging interest on partners Capi-

tals amounted to Rs. 66,500. The monthly average turnover during the first 9 months of the

calendar year was twice the correspond ing figure for the remaining 3 mon ths.

You are required to prepare : (1) Profits & Loss Account of the firm for the pre-admissionperiod and (2) Profit & Loss Accoun t of the firm for th e post-acquisition period.

[Hints : (1) Ratio of Turn over : 1.1.2008 to 30.9.08: 1.10.08 to 31.12.08 = 9 x 2 : 3 x 1 = 18 : 3 or 6 :

1 (2) Profit Sharing Ration between A & B = 3 : 2 and Profit Sharing Ratio between B & C = 3 :

2, So, Ratio between A, B and C = 9 : 6 : 4]

[Ans : (a) Pre-Admission Periods distributable profits = 51,000; (b) Post-Admission Periods

distributable p rofits = 7,220; (c) Interest on Capitals of Capitals for (a) = Rs. 6,000 and for (b) Rs.

2,280]

Documents

Study Note 4.2, Page 169-197