ASSIGNMENT – PARTNERSHIP (Solution attached)
Mr Amjad Baig founded Amjad General Store in 2011 with the oulet located at 9 th Commercial Street Phase
4 DHA Karachi. In 2012 Mr Karim Shuja opened Karim Medical Store right next to Amjad General Store.
Mr Amjad and Mr Karim became good friends with time, as they share the same religious and business
philosophy. In December 2013 they decided to become partners and join both the stores and form A.K.
Medical & General Store.
On December 31, 2013, the accounts of Amjad General Store and Karim Medical Store were as follows,
which then were pooled by both the partners in the A.K. Medical & General Store Partnership:
Amjad General Store
Cash
Inventory
Accounts Receivable
Accounts Payable
1,750,000
4,000,000
3,000,000
3,750,000
Karim Medical Store
Cash
Inventory
Accounts Receivable
Accounts Payable
1,050,000
1,400,000
50,000
0
The partnership was formed and the business started on January 1 2014.
1. Make general entries to record the formation of partnership.
On December 31, 2013 the business reported a net income of Rs 2,600,000.
2. Prepare a Statement of Partners’ Equity at the end of 2013, assuming that Income is to be
distributed in proportion of investments, and Mr. Amjad’s withdrawals for the year totaled Rs
700,000 and Mr. Karim’s withdrawal totaled Rs 1,200,000.
3. Prepare a Schedule of Distribution of Profits under each of the following cases, and make general
entries:
a) The Net Income as per Partnership Deed has to be distributed in proportion of partners’ capital.
b) Mr Amjad has to be paid a salary of Rs 600,000 and Mr Karim a salary of 1,200,000, and the
remainder has to be distributed in proportion of partners’ capital.
c) Mr Amjad has to be paid a salary of Rs 600,000 and Mr Karim a salary of 1,200,000, both the
partners have to be paid 10% interest on their capital investment, and the remainder has to be
distributed in proportion of partners’ capital.
d) Mr Amjad has to be paid a salary of Rs 600,000 and Mr Karim a salary of 1,200,000, both the
partners have to be paid 20% interest on their capital investment, and the remainder has to be
distributed in proportion of partners’ capital.
1
SOLUTION
Account Title & Explanation
Date
1-Jan-14 Cash
Ref
Inventory
A/R
A/P
Amjad Baig, Capital
1,050,000
1,400,000
50,000
Inventory
A/R
Karim Shuja, Capital
3
a
Cr
3,750,000
5,000,000
1-Jan-14 Cash
2
Dr
1,750,000
4,000,000
3,000,000
2,500,000
A.K. Medical & General Store
Statement of Partners’ Equity
For the Year Ended December 31,2014
Amjad Baig Karim Shuja Total
Balances, Jan 1,2014
5,000,000 2,500,000 7,500,000
Add: Additional investments
0
0
0
Net Income for the year
1,733,333
866,667 2,600,000
Subtotals
6,733,333 3,366,667 10,100,000
Less: Drawings
(700,000) (1,200,000) (1,900,000)
Balances, Dec 31, 2014
6,033,333 2,166,667 8,200,000
Division of Partnership Net Income
Ratio Amjad Baig Karim Shuja Net Income
Net Income to be Divided
2,600,000
Allocated in a Fixed Ratio:
Amjad
2/3 1,733,333
Karim
1/3
866,667 (2,600,000)
Total Share to Each Partner
1,733,333
866,667
0
Account Title & Explanation
Date
1-Jan-14 Income Summary
Amjad Baig, Capital
Karim Shuja, Capital
Ref
Dr
2,600,000
Cr
1,733,333
866,667
3
b
Division of Partnership Net Income
Ratio Amjad Baig Karim Shuja Net Income
Net Income to be Divided
2,600,000
Salary Allowances to Partners
600,000
1,200,000 (1,800,000)
Remaining Income after Salary Allowances
800,000
Allocated in a Fixed Ratio:
Amjad
2/3
533,333
Karim
1/3
266,667
(800,000)
Total Share to Each Partner
533,333
266,667
0
Account Title & Explanation
Date
01-Jan-14 Income Summary
Ref
Dr
2,600,000
Cr
533,333
266,667
Amjad Baig, Capital
Karim Shuja, Capital
3
c
Division of Partnership Net Income
Capital/
Ratio
Net Income to be Divided
Salary Allowances to Partners
Interest All. To Amjad
5,000,000
Interest All. To Karim
2,500,000
Remaining Income after Salary &
Interest Allowances
Allocated in a Fixed Ratio:
Amjad
2/3
Karim
1/3
Total Share to Each Partner
Account Title & Explanation
Date
01-Jan-14 Income Summary
Ref
Amjad Baig Karim Shuja Net Income
600,000
500,000
1,100,000
d
1,450,000
50,000
16,667
1,466,667
(50,000)
0
33,333
1,133,333
Dr
2,600,000
Cr
1,133,333
1,466,667
Amjad Baig, Capital
Karim Shuja, Capital
3
250,000
2,600,000
(1,800,000)
(500,000)
(250,000)
1,200,000
Division of Partnership Net Income
Capital/
Ratio
Net Income to be Divided
Salary Allowances to Partners
Interest All. To Amjad
5,000,000
Interest All. To Karim
2,500,000
Remaining Income after Salary &
Interest Allowances
Allocated in a Fixed Ratio:
Amjad
2/3
Karim
1/3
Total Share to Each Partner
Account Title & Explanation
Date
01-Jan-14 Income Summary
Amjad Baig, Capital
Karim Shuja, Capital
Ref
Amjad Baig Karim Shuja Net Income
600,000
1,000,000
1,600,000
500,000
2,600,000
(1,800,000)
(1,000,000)
(500,000)
1,700,000
(700,000)
(233,333)
1,466,667
700,000
0
1,200,000
(466,667)
1,133,333
Dr
2,600,000
Cr
1,133,333
1,466,667
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