Partnership Accounting Rules and Solutions

 Partnership Accounting Rules and Solutions:

1. Partnership business: Two or more people's business.

2. Partnership Agreement is the base of Partnership Business

3. Partnership Business related exercise for Foundation Level: 

a. Prepare Profit & Loss Appropriation Account;

b. Prepare  Partners' Capital Account;

c. Prepare Partners' Current Account (When Partners' Capital is Fixed)

d. Prepare Partner's Loan Account.

4. Information given in Exercise:

a. Name of Partners

b. Partners Profit/ Loss distribution ratio

c. Partners' capital employed in business

d. Partners' Loan to business

e. Partners' Drawings from business

f. Rate of interest on Capital employed by partners,

g. Rate of interest on Loan by partners to business

h. Rate of interest on drawings by partners,

i. Salary/ honorarium to partner for running business

j. Commission to partners

k. Net profit/loss earned during the FY

5. Workings:

i. Calculation of interest on capital= (Amount of Capital* Rate)/12* Time of capital employed in the FY;

ii. Calculation of interest on Drawings:

a. When Same amount of Drawings at the opening of the each month=(Monthly Drawing*Rate of interest)*6.5

b. When Same amount of Drawings at the mid of the each month=(Monthly Drawing*Rate of interest)*6.0

c. When Same amount of Drawings at the end of the each month=(Monthly Drawing*Rate of interest)*5.5

d. When Total Amount of Annual Drawing= (Total Amount of Drawing*Rate of Interest)/12*6 

iii. Calculation of Annual Drawing=(Monthly Drawing*12)

iv. Calculation of Interest on Loan= (Loan Amount*Rate of interest)/12*time use of loan in business

v. Calculation of Commission: 1st Step-Calculation of net profit before commission.

a. When Commission is on net profit before charging such commission: Commission= (Net Profit before Charging Commission*Rate of Commission)

b. When Commission is on net profit after charging such commission: Commission= Net Profit before Charging Commission/(100+Rate of Commission)*Rate of Commission

vi. Divisible Profit/Loss: Partner's Divisible Profit/Loss= (Total Divisible Profit/Total of Ratio*Respective Partner's ratio)

Exercise-1:

1. Nasir, Tajul and Robel are partners in a firm with capitals Tk. 4,00,000, Tk. 3,00,000, Tk. 3,00,000 respectively on 01-01-2019. The Partnership Deed contains the following clauses:

a) Interest on Capital @8% per annum.

b) Interest on Drawings @10% per annum.

c) Nasir will get Salary @5,000 per month.

d) Tajul and Robel will get commission @10% each on the net profit.

e) Profit and Losses will be shared :

-              Upto Tk. 45,000 in the ratio of 4:3:3.

-              Rest of the amount will be distributed equally.

The net profit of the firm for the year ended 31 December 2019 is Tk. 3,90,000 and the Drawings of the partners are:

-              Nasir's Drawings was Tk. 2000 at the beginning of the each month.

-              Tajul and Robel's Drawings were Tk. 2000 & Tk. 3000 respectively at the end of the each month.

 Required: Prepare the Profit & Loss Appropriation Account for the year ended 31st December 2019 and Capital Accounts (Fixed) of the Partners.

Solution to Exercise-1:

Workings:

1. Capital Ratio=4:3:3

2. Calculation of interest on capital:

Nasir= Tk.4,00,000*8%=Tk.32,000

Tajul=Tk.3,00,000*8%= Tk.24,000

Robel=Tk.3,00,000*8%=Tk.24,000

3. Calculation of interest on Drawings:

Nasir= (Tk.2,000*10%)*6.5 =Tk.1,300

Tajul= (Tk.2,000*10%)*5.5 =Tk.1,100

Robel= (Tk.3,000*10%)*5.5 =Tk.1,650

4. Calculation of Total Drawings:

Nasir= Tk.2,000*12=Tk.24,000

Tajul=Tk.2,000*12= Tk.24,000

Robel=Tk.3,000*12=Tk.36,000

5. Nasir's Salary= Tk.5,000*12=Tk.60,000

6. Calculation of Commission:

Net Profit before commission= (Tk. 3,90,000+Tk.4050)-(Tk.80,000 + Tk.60,000)=Tk. 2,54,050 

Tajul's Commission=Tk. 2,54,050/110*10=Tk.23,095

Robel's Commission=Tk. 2,54,050/110*10=Tk.23,095

7. Divisible Profit:

     Up to 45,000: 

       Nasir      45000/10*4= 18000

       Tajul      45000/10*3=  13500

       Robel     45000/10*3=  13500

Rest of the profit (207860-45000)= 162860:

       Nasir      162860/3= 54287

       Tajul      162860/3= 54287

       Robel     162860/3= 54286

Total divisible profit:

   Nasir = 18000+54287= 72,287

   Tajul = 13500+54287= 67787

   Robel = 13500+ 54286= 677

find full solution please click this link: Partnership Solution for download