can you help please..
PROB 1: A, B and C shared the profit of Rs. 9,00,000 in the ratio of 2:2:1 without providing for interest on B’s loan, B granted a loan of Rs. 4,00,000 in the beginning of accounting year. Where as the partnership deed is silent on the interest on loan and the profit sharing ratio. Give adjusting entry.
PROB 2: A and B are partners sharing profits & Losses in the ratio of 3:1. Their capitals were Rs. 60,000 and Rs. 40,000 respectively. As from 1st April 2005 it was agreed to change the profit sharing ratio to 3:2. According to the partnership deed goodwill should be valued at three years purchase of the average of five year’s profits. The profits of the previous five years were 2001- Rs 30,000, 2002 – Rs.40,000, 2003 – Rs 50,000, 2004 – Rs. 60,000 & 2005 – Rs. 70,000
Pass necessary Journal entry.
Hopefully some of the links on the next 2 posts, which I saw first, will apply here as well.
Sra
To solve both problems, we need to understand the concept of adjusting entries in partnership accounting.
Adjusting entries are made to allocate profit, adjust capital accounts, account for interest on partner's loans, and record other necessary adjustments.
Let's solve both problems one by one:
PROB 1:
As per the given information:
- A, B, and C share the profit in the ratio of 2:2:1.
- B granted a loan of Rs. 4,00,000 at the beginning of the accounting year.
- The partnership deed is silent on both interest on the loan and the profit sharing ratio.
In this case, we need to make an adjusting entry to account for the interest on the loan granted by B. Since the partnership deed is silent on the interest, we need to calculate the interest and allocate it among the partners.
Assuming the interest rate is 10% per annum, the interest on the loan would be:
Interest = Principal * Rate * Time = Rs. 4,00,000 * 10% = Rs. 40,000
The adjusting entry would be:
Partners' Share of Interest:
Debit: B's Loan Account - Rs. 40,000 (Increase the loan account)
Credit: A's Capital Account - Rs. 26,667 (2/5 * Rs. 40,000)
Credit: B's Capital Account - Rs. 26,667 (2/5 * Rs. 40,000)
Credit: C's Capital Account - Rs. 13,333 (1/5 * Rs. 40,000)
PROB 2:
As per the given information:
- A and B are partners sharing profits and losses in the ratio of 3:1.
- Their initial capitals were Rs. 60,000 and Rs. 40,000 respectively.
- As of 1st April 2005, the profit sharing ratio was changed to 3:2.
- Goodwill should be valued at three years' purchase of the average of the last five years' profits.
To calculate the value of goodwill, we need to find the average of the last five years' profits:
Average Profit = (Rs. 30,000 + Rs. 40,000 + Rs. 50,000 + Rs. 60,000 + Rs. 70,000) / 5 = Rs. 50,000
Value of Goodwill = Average Profit * Years' Purchase = Rs. 50,000 * 3 = Rs. 1,50,000
The adjusting entry would be:
Record the increase in Goodwill:
Debit: Goodwill Account - Rs. 1,50,000 (Increase the Goodwill account)
Credit: A's Capital Account - Rs. 30,000 (Difference between old and new ratios)
Credit: B's Capital Account - Rs. 10,000 (Difference between old and new ratios)
These are the adjusting entries for both problems.