Financial Accounting
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.
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Financial Accounting
Lecture – 35
Mark up on Drawings

Markup may also be charged on drawings, depending
upon the partnership agreement.
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Financial Accounting

Lecture – 35
Markup on capital and drawing do not become part of
Profit and Loss Account. They are treated in the
appropriation account.
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Financial Accounting
Lecture – 35
Recording
• Mark up on Capital
Debit
Credit
Credit
Credit
Profit and Loss Appropriation Account
Partner A’s Current Account
Partner B’s Current Account
Partner C’s Current Account
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Financial Accounting
Lecture – 35
Recording
• Mark up on Drawings
Debit
Debit
Debit
Credit
Partner A’s Current Account
Partner B’s Current Account
Partner C’s Current Account
Profit and Loss Appropriation Account
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Financial Accounting
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.
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Financial Accounting
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
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Financial Accounting
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 1
Rs. 2000
 October 1
Rs. 2500
 November 1 Rs. 1500
 March 1
Rs. 2000
 June 1
Rs. 3000
• Calculate the markup on his drawing if the rate is 5%.
• Consider a financial year from July to June.
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Financial Accounting
Lecture – 35
Calculation – Mark up on Drawings
SOLUTION
Aug 1 Rs. 2,000 x 5% = 100 x 11 / 12 = 91.67
Oct 1 Rs. 2,500 x 5% = 125 x 9 / 12 = 93.75
Nov 1 Rs. 1,500 x 5% = 75 x 8 / 12 = 50.00
Mar 1 Rs. 2,000 x 5% = 100 x 4 / 12 = 33.33
Jun 1 Rs. 3,000 x 5% = 150 x 1 / 12 = 12.50
TOTAL
281.25
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Financial Accounting
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:
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Financial Accounting






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
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Financial Accounting
Lecture – 35
Solution
A, B, C Partnership
Profit and Loss Appropriation Account
Particulars
This slide
will be split
in 2 parts
Note
Rs.
Net Profit
Less: Partners Salaries –
Less: Mark up on capital –
Add: Mark up on drawing –
Rs.
667,700
B
C
A
B
C
1
1
1
A
B
C
Profit distributable among partners
Less: Partners Share –
A
B
C
Profit Carried to Balance Sheet
44,000
77,000
121,000
44,000
33,000
19,800
96,800
5,280
3,960
2,860
12,100
462,000
2
2
2
12
184,800
138,600
138,600
462,000
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Financial Accounting
Lecture – 35
A, B, C Partnership
Profit and Loss Appropriation Account
Particulars
Parts 1
Note
Rs.
Net Profit
Less: Partners Salaries –
Less: Mark up on capital –
Rs.
667,700
B
C
A
B
C
1
1
1
13
44,000
77,000
121,000
44,000
33,000
19,800
96,800
Financial Accounting
Add: Mark up on drawing –
Part 2
Lecture – 35
A
B
C
5,280
3,960
2,860
Profit distributable among partners
Less: Partners Share –
A
B
C
12,100
462,000
2
2
2
Profit Carried to Balance Sheet
184,800
138,600
138,600
462,000
0
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Financial Accounting
Lecture – 35
Solution
Extract from Balance Sheet
A, B, C Partnership
Balance Sheet As At June 30, ----Particulars
Financed By:
Capital –
Current Account –
Note
A
B
C
A
B
C
3
4
5
Partners’ Equity
Amount Rs.
Amount Rs.
880,000
660,000
396,000
1,936,000
62,040
76,252
96,514
234,806
2,170,806
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Financial Accounting
Lecture – 35
Notes
• (1) Interest on Capital
o A = 880,000 x 5% = 44,000
o B = 660,000 x 5% = 33,000
o C = 396,000 x 5% = 19,800
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Financial Accounting
Lecture – 35
Notes
• (2) Partners Share in Profit
o A = 462,000 x 40% = 184,800
o B = 462,000 x 30% = 138,600
o C = 462,000 x 30% = 138,600
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Financial Accounting
Lecture – 35
Notes
• (3) A’s current Account
A’s Current A/c
Debit side.
Drawing
Mark up on
Drawing
Balance C/F
Credit side.
202,400
5,280
62,040
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Balance B/F
Salary
Markup on
Capital
Profit
40,920
0
44,000
184,800
Financial Accounting
Lecture – 35
Notes
(4) B’s Current Account
B’s Current A/c
Debit side.
Drawing
Mark up on
Drawing
Balance C/F
Credit side.
156,200
3,960
76,252
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Balance B/F
Salary
Markup on
Capital
Profit
20,812
44,000
33,000
138,600
Financial Accounting
Lecture – 35
Notes
• (5) C’s current Account
C’s Current A/c
Debit side.
Drawing
Mark up on
Drawing
Balance C/F
Credit side.
151,800
2,860
96,514
20
Balance B/F
Salary
Markup on
Capital
Profit
15,774
77,000
19,800
138,600
Financial Accounting
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.
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Financial Accounting
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.
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