Basics of Accounting for Partnership

1. Prepared By
PRASANTH.S.R

2. Illustration -1
Anil , Rahim and Vishal set up a partnership firm on
January 1, 2010. They contributed Rs. 50,000, Rs.
40,000 and Rs. 30,000 respectively as their capitals and
decided to share profits in the ratio of 3:2:1. The
partnership deed provided that Anil is to be paid a salary of
Rs. 1,000 p.m. and Rahim a commission of Rs. 5,000. It
also provided that interest on capital be allowed @ 6% p.a.
The drawings for the year were: Anil Rs. 6,000, Rahim Rs.
4,000 and Vishal Rs. 2,000. Interest on drawings Rs. 270
on Anil’s drawings, Rs. 180 on Rahim's drawings and Rs. 90
on Vishal's drawings. The net amount of profit as per the
profit and loss account for the year ended 2010 was Rs.
35,660. You are required to record the necessary journal
entries relating to appropriation of profit and prepare the
profit and loss appropriation account and the partners'
capital accounts (Fixed).

3. Journal Entry in the Books of Anil , Rahim and Vishal

4. Journal Entry in the Books of Anil , Rahim and Vishal

5. Particulars Amount Particulars Amount
To Anil's Salary
To Rahim’s Commission
To Interest on capital
Anil's Capital 3,000
Rahim's Capital 2,400
Vishal's Capital
1,800
To Profit transferred to Capital
accounts
Anil 6,000
Rahim 4,000
Vishal 2,000
12000
5000
7200
12000
By Net profit as per
Profit and loss a/c
By interest on drawings
Anil's Capital 270
Rahim's capital 180
Vishal’s Capital 90
35,660
540
36,200 36,200
Profit and Loss Appropriation Account
Dr for the year ended December 31,2010 Cr

6. Dat
e
Particulars Anil Rahim Vishal Date Particulars Anil Rahim Vishal
To Drawings
To Interest on
Drawings
To Balance c/d
6000
270
64730
4000
180
47220
2000
90
31710
By Balance b/d
By Interest on
capital
By Salary
By Commission
ByP&L
Appropriation
a/c (Profit)
50000
3000
12000
------
6000
40000
2400
------
5000
4000
30000
1800
-------
-------
2000
71000 51400 33800 71000 51400 33800
Partner’s Capital Account
Dr Cr

7. Reghu and Ramu are partners in a firm sharing
profits in the ratio of 3:2. The balance in their capital
and current accounts as on January1, 2000 were as
under. The partnership deed provided that Reghu is to
be paid salary @ Rs. 500 p.m. whereas Ramu is to get
commission of Rs. 4,000 for the year. Interest on
capital is to be allowed @ 6% p.a. The drawings of
Reghu and Ramu for the year were Rs. 3,000 and Rs.
1,000, respectively. Interest on drawings for Reghu and
Ramu works out at Rs. 75 and Rs. 25, respectively.
The net profit of the firm before making these
adjustments was Rs. 24,900.Prepare the Profit and
Loss Appropriation Account and the partners' capital
accounts under fixced and fluctuating method.
Items Reghu
(Rs.)
Ramu
(Rs.)
Capital Account 30000 20000
Current Account (Credit) 10000 8000

8. Profit and Loss Appropriation Account
for the year ended Dec. 31,2000
Dr. Cr.
Particulars Amount Particulars Amount
To Reghu's Salary
To Ramu’s Commission
To Interest on capital
Reghu's Capital 1800
Ramu's Capital 1200
To Profit transferred to Capital
accounts
Reghu 7200
Ramu 4,800
6000
4000
3000
12000
By Net profit as per
Profit and loss a/c
By interest on drawings
Reghu's Capital 75
Ramu's capital 25
24900
100
25000 25000

9. Partner’s Capital Account
Dr
Cr
Date Particulars Reghu Ramu Date Particulars Reghu Ramu
To Balance
c/d
30000 20000 By Balance
b/d
30000 20000
30000 20000 30000 20000

10. Partner’s Current Account
Dr Cr
Dat
e
Particulars Reghu Ramu Dat
e
Particulars Reghu Ramu
To Drawings
To Interest on
Drawings
To Balance c/d
3000
75
21925
1000
25
16975
By balance b/d
By Interest on
capital
By Salary
By commission
By P&L
Appropriation
a/c (Profit)
10000
1800
6000
7200
8000
1200
4000
4800
25000 18000 25000 18000

11. Partner’s Capital Account
Dr Cr
Date Particulars Reghu Ramu Date Particulars Reghu Ramu
To Drawings
To Interest on
Drawings
To Balance c/d
3000
75
41925
1000
25
28975
By balance b/d
By Interest on
capital
By Salary
By commission
By P&L
Appropriation a/c
(Profit)
30000
1800
6000
7200
20000
1200
4000
4800
45000 30000 45000 30000