Partnership Accounting

Mahesh is owed Rs. 6,00,000 on the date of retirement. This amount is to be paid in four equal annual instalments. Instalment per year = 6,00,000 ÷ 4 = 1,50,000. Interest is charged at 12% p.a. on the balance outstanding at the beginning of each year. Interest is added to the balance, and then the instalment is deducted. The loan account below shows interest each year, the amount paid, and the remaining balance.
Mahesh's Loan Account

Interest on capital 6%: Amit 15,000; Babu 12,000; Charu 9,000. Profit before interest is 1,50,000, so profit after interest becomes: 1,50,000 − 36,000 = 1,14,000. Charu must receive at least 30,000; her normal share in new ratio 3 : 2 : 1 is 1,14,000 = 19,000. Guarantee shortfall = 30,000 − 19,000 = 11,000, which Amit must bear. Hence Amit's share is reduced by 11,000 and added to Charu. Final distribution: Amit 57,000 − 11,000 = 46,000; Babu 38,000; Charu 30,000.
Profit & Loss Appropriation Account

Interest on capital: Akshay 30,000, Bhanu 24,000, Chakresh 18,000. Salary to Akshay is 1,20,000 and commission to Bhanu is 50,000. Interest on drawings is added back: 2,700 + 1,800 + 900 = 5,400. Adjusted profit becomes 3,56,600 + 5,400 = 3,62,000. After deducting interest on capital, salary and commission (30,000 + 24,000 + 18,000 + 1,20,000 + 50,000 = 2,42,000), the remaining profit is 1,20,000. This is distributed in ratio 3 : 2 : 1 as: Akshay 60,000; Bhanu 40,000; Chakresh 20,000.
Profit & Loss Appropriation Account

Goodwill of the firm is Rs. 9,000. Neeraj's share of goodwill equals . Since Neeraj does not bring his share of goodwill in cash, his capital account is debited for Rs. 3,000 and credited to Sonu and Sandeep in the old ratio of 3 : 2. Neeraj brings Rs. 30,000 as capital which is credited normally. The firm does not raise goodwill account; instead, goodwill is adjusted through partners' capital accounts. Journal entries are given below.
Journal Entries:

Goodwill of the firm is Rs. 24,000 and goodwill already appearing in the books is Rs. 12,000. The old goodwill must be written off between Vimal and Nirmal in the old ratio of 3 : 2. Sushil's share of goodwill is , which he brings in cash. This Rs. 8,000 is credited to Vimal and Nirmal in the old ratio of 3 : 2. Sushil also brings Rs. 30,000 for capital. All entries below represent correct accounting treatment.
Journal Entries: