Question

Question 25

Ameen, Ibraheem, and Abdulaziz invested to establish a company for Computer Software. They decided to share capital and distributed the profits in equally.  The total capital SR 2,700,000.  Ameen, Ibraheem paid their share inpartnership SR 1,800,000, and Abdulaziz paid SR 600,000 his full share.

The journal entries of the initial investments under Bonus Method:

A.

	Questions	Dr	Cr
D	bank A/c                 Ameencapital                          IbraheemCapital            AbdulazizCapital	2,400,000	900,000 900,000 600,000

B.

	Questions	Dr	Cr
A	Investment A/c                 Ameencapital                          IbraheemCapital            AbdulazizCapital	2,400,000	800,000 800,000 800,000

C.

	Questions	Dr	Cr
C	Bank A/c                 Ameencapital                          IbraheemCapital            AbdulazizCapital	2,700,000	900,000 900,000 900,000

D.

	Questions	Dr	Cr
B	Bank A/c                 Ameencapital                          IbraheemCapital            AbdulazizCapital	2,400,000	800,000 800,000 800,000

Answer 1

Initial investment of partners under bonus method will be recorded as percentage of their profit sharing which is equally.

2,700,000 will be brought in to partnership equally in the ratio of 1:1:1 i.e. SR 900,000 each

So, the entry will be:

Bank A/c	2,700,000
Ameen Capital		900,000
Ibraheem Capital		900,000
Abdulaziz Capital		900,000

Excess amount paid by Abdulaziz, i.e. SR 300,000 will be distributed to Ameen and Ibraheem as bonus according to their ratio later on.