2. 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.

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

4. 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.

5. Financial Accounting 4 Lecture – 35 Recording Mark up on Capital DebitProfit and Loss Appropriation Account Credit Partner A’s Current Account Credit Partner B’s Current Account Credit Partner C’s Current Account

6. 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 CreditProfit and Loss Appropriation Account

7. 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.

8. 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

9. 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 1Rs. 2000 October 1Rs. 2500 November 1Rs. 1500 March 1Rs. 2000 June 1Rs. 3000 Calculate the markup on his drawing if the rate is 5%. Consider a financial year from July to June.

10. Financial Accounting 9 Lecture – 35 Calculation – Mark up on Drawings SOLUTION Aug 1Rs. 2,000 x 5% = 100 x 11 / 12 = 91.67 Oct 1Rs. 2,500 x 5% = 125 x 9 / 12 = 93.75 Nov 1Rs. 1,500 x 5% = 75 x 8 / 12 = 50.00 Mar 1Rs. 2,000 x 5% = 100 x 4 / 12 = 33.33 Jun 1Rs. 3,000 x 5% = 150 x 1 / 12 = 12.50 TOTAL 281.25

11. 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:

12. 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

13. Financial Accounting 12 Lecture – 35 Solution A, B, C Partnership Profit and Loss Appropriation Account ParticularsNoteRs. Net Profit667,700 Less: Partners Salaries –B C 44,000 77,000121,000 Less: Mark up on capital –A1 B1 C1 44,000 33,000 19,80096,800 Add: Mark up on drawing –A B C 5,280 3,960 2,86012,100 Profit distributable among partners Less: Partners Share –A2 B2 C2 184,800 138,600 462,000 Profit Carried to Balance Sheet0 This slide will be split in 2 parts

14. Financial Accounting 13 Lecture – 35 A, B, C Partnership Profit and Loss Appropriation Account ParticularsNoteRs. Net Profit667,700 Less: Partners Salaries –B C 44,000 77,000121,000 Less: Mark up on capital –A1 B1 C1 44,000 33,000 19,80096,800 Parts 1

15. Financial Accounting 14 Lecture – 35 Add: Mark up on drawing –A B C 5,280 3,960 2,86012,100 Profit distributable among partners Less: Partners Share –A2 B2 C2 184,800 138,600 462,000 Profit Carried to Balance Sheet0 Part 2

16. Financial Accounting 15 Lecture – 35 Solution A, B, C Partnership Balance Sheet As At June 30, ----- ParticularsNoteAmount Rs. Financed By: Capital –A B C 880,000 660,000 396,0001,936,000 Current Account –A3 B4 C5 62,040 76,252 96,514234,806 Partners’ Equity2,170,806 Extract from Balance Sheet

17. Financial Accounting 16 Lecture – 35 Notes (1) Interest on Capital oA = 880,000 x 5% = 44,000 oB = 660,000 x 5% = 33,000 oC = 396,000 x 5% = 19,800

18. Financial Accounting 17 Lecture – 35 Notes (2) Partners Share in Profit oA = 462,000 x 40% = 184,800 oB = 462,000 x 30% = 138,600 oC = 462,000 x 30% = 138,600

19. 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

20. 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

21. 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

22. 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.

23. 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.