Advanced Financial Accounting FIN-611 Mian Ahmad Farhan Lecture-17 Branch Accounting

Expenses Function Cost of goods sold Administrative expenses Selling expenses Financial expenses Income tax expense

Profit Distribution Interest on capital Partners salaries Profit sharing ratio

Question Net profit Rs. 70,000 Capital Introduced A Rs. 1,00,000 B Rs. 2,00,000 Interest on capital @ 10% Additional salary of Rs. 2,000 PM paid to MR. A Current Account Opening Balance A Rs. 10,000 Opening Balance B Rs. 15,000

A B Total Net Profit ---- 70,000 Interest on capital 10,000 20,000 (30,000) Partner salary 24,000 (24,000) 16,000 (16,000) Profit sharing A 16,000 x3/5 B 16,000 x 2/5 9,600 6,400 43,600 24,600 --- Appear row wise

Partner’s Capital Account Fluctuating capital Fixed capital

Fluctuating Capital Drawings Balance c/f A B Opening capital b/f Profit 30,000 123,600 211,400 110,000 43,600 215,000 26,400 153,600 241,400

Fixed Capital Balance c/f A B Opening capital b/f 100,000 200,000

Current Account Drawings Balance c/f A B Opening capital b/f Profit 30,000 23,600 11,400 10,000 43,600 15,000 26,400 53,600 41,400

Owner’s Capital (Balance Sheet) Current A/c 23,600 123,600 B Capital 200,000 Current A/c 11,400 211,400 335,000

Question Tariq and Saeed have been in partnership for one year sharing profits and losses in the ratio of Tariq 3/5 & Saeed 2/5. They are entitled to 5% per annum interest on capitals, Tariq having Rs.2,000 capital and Saeed Rs.6,000. Saeed is to have a salary of Rs.500. they charge interest on drawings, Tariq being charged Rs.50 and Saeed Rs.100. The net profit, before any distributions to the partners, amounted to Rs.5,000 for the year ended 31 December 2007.

Solution Total (Rs) Net Profit 5,000 Add Interest on drawings Tariq 50 Saeed 100 150 5,150 Less Salary saeed 500 Interest on capital 400 900 Balance of profit 4,250 Profit sharing Tariq 4,250 x3/5 =2,550 Saeed 4,250 x 2/5 = 1,700 4,250

Solution Tariq Saeed Balance of profit Interest on capital Salary Less Interest on drawings Tariq Saeed 2,250 100 --- 2,650 50 2,600 1,700 300 500 2,500 2,400

Capital Account Balance c/f Tariq Saeed Bank 2,000 6,000

Current Account Drawings Balance c/f Tariq Saeed Interest on capital Salary Profit 2,000 600 400 100 500 2,550 300 --- 1,700 2,650 2,500