1 J, K, L were partners and their capitals were 20,000, 12,000 and 8,000. under their agreement interest on capital 5%. and no interest on drawing. drawing. PSR 3:2:1. L is to be provided 2000 p. a salary. Profits for the year were €24,000.their drawings were £2400, £2000 and $2400 - In addition k withdrew 860 of which no entry was passed.
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Answer:
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Explanation:
To solve this problem, we need to prepare a Profit and Loss Appropriation account.
Profit and Loss Appropriation Account
Particulars Amount (£) Amount (£)
Profit before appropriation 24,000
Add: Interest on capital
J (5% of 20,000) 1,000
K (5% of 12,000) 600
L (5% of 8,000) 400
_______
25,000
Less: Salary to L 2,000
Net profit available for appropriation 23,000
According to the partnership agreement, the profit is to be shared in the ratio of 3:2:1 among J, K, and L.
J's share = (3/6) x 23,000 = £11,500
K's share = (2/6) x 23,000 = £7,666.67
L's share = (1/6) x 23,000 = £3,833.33
Now, we need to calculate the interest on drawings for each partner.
J's drawings = £2,400
K's drawings = £2,400 - £860 = £1,540
L's drawings = £2,400
Interest on J's drawings = (5/100) x 2,400 = £120
Interest on K's drawings = (5/100) x 1,540 = £77
Interest on L's drawings = (5/100) x 2,400 = £120
We can now prepare the partners' current accounts.
J's Current Account
Particulars Amount (£) Particulars Amount (£)
To drawings 2,400 By balance b/d 20,000
To interest on drawings 120 By share of profit 11,500
By interest on capital 1,000 By balance c/d 30,520
By drawings 2,400
By PSR 4,580
_______
37,500 37,500
K's Current Account
Particulars Amount (£) Particulars Amount (£)
To drawings 2,400 By balance b/d 12,000
To interest on drawings 77 By share of profit 7,666.67
By interest on capital 600 By balance c/d 18,843.67
By drawings 2,400
By PSR 3,080.33
_______
21,077 21,077
L's Current Account
Particulars Amount (£) Particulars Amount (£)
To drawings 2,400 By balance b/d 8,000
To interest on drawings 120 By share of profit 3,833.33
To salary 2,000 By interest on capital 400
By interest on capital 400 By balance c/d 10,653.33
By drawings 2,400
By PSR 1,633.33
_______
15,553.33 15,553.33
In the end, we can see that L needs to be provided with an additional salary of £167.67 (£2,000 - £1,832.33) to balance his current account. Also, it should be noted that K withdrew an additional amount of £860 without any entry, which needs to be accounted for separately.
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