Accounting, Lectures

1. 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.

2. Financial Accounting
2
Lecture – 35
Mark up on Drawings
 Markup may also be charged on drawings, depending
upon the partnership agreement.

3. Financial Accounting
3
Lecture – 35
 Markup on capital and drawing do not become part of
Profit and Loss Account. They are treated in the
appropriation account.

4. Financial Accounting
4
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

5. Financial Accounting
5
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

6. Financial Accounting
6
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.

7. Financial Accounting
7
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

8. Financial Accounting
8
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.

9. Financial Accounting
9
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

10. Financial Accounting
10
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:

11. Financial Accounting
11
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

12. Financial Accounting
12
Lecture – 35
Solution
A, B, C Partnership
Profit and Loss Appropriation Account
Particulars Note Rs. Rs.
Net Profit 667,700
Less: Partners Salaries – B
C
44,000
77,000 121,000
Less: Mark up on capital – A 1
B 1
C 1
44,000
33,000
19,800 96,800
Add: Mark up on drawing – A
B
C
5,280
3,960
2,860 12,100
Profit distributable among partners
Less: Partners Share – A 2
B 2
C 2
184,800
138,600
138,600
462,000
462,000
Profit Carried to Balance Sheet 0
This slide
will be split
in 2 parts

13. Financial Accounting
13
Lecture – 35
A, B, C Partnership
Profit and Loss Appropriation Account
Particulars Note Rs. Rs.
Net Profit 667,700
Less: Partners Salaries – B
C
44,000
77,000 121,000
Less: Mark up on capital – A 1
B 1
C 1
44,000
33,000
19,800 96,800
Parts 1

14. Financial Accounting
14
Lecture – 35
Add: Mark up on drawing – A
B
C
5,280
3,960
2,860 12,100
Profit distributable among partners
Less: Partners Share – A 2
B 2
C 2
184,800
138,600
138,600
462,000
462,000
Profit Carried to Balance Sheet 0
Part 2

15. Financial Accounting
15
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
880,000
660,000
396,000 1,936,000
Current Account – A 3
B 4
C 5
62,040
76,252
96,514 234,806
Partners’ Equity 2,170,806
Extract from Balance Sheet

16. Financial Accounting
16
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

17. Financial Accounting
17
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

18. Financial Accounting
18
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

19. Financial Accounting
19
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

20. Financial Accounting
20
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

21. Financial Accounting
21
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.

22. Financial Accounting
22
Lecture – 35
Dissolution Of A Firm
• When a partnership firm is dissolved, first of all, liabilities of
the partnership are paid.
• The remaining amount (if available) is distributed among the
partners in their profit/loss sharing ratios.