Question

Q-2: Jahangir, Zain, and Zohaib invested Rs.40,000, Rs.56,000, and Rs.64,000, respectively, in a partnership.
During its first calendar year, the firm earned Rs.124,500.
Required:
Prepare the entry to close the firm’s Income Summary account as of its December 31 year-end and to allocate
the Rs.124,500 net income to the partners under each of the following separate assumptions: The partners (1)
have no agreement on the method of sharing income and loss; (2) agreed to share income and loss in the ratio of
their beginning capital investments; and (3) agreed to share income and loss by providing annual salary
allowances of Rs.33,000 to Jahangir, Rs.28,000 to Zain, and Rs.40,000 to Zohaib; granting 10% interest on the
partners’ beginning capital investments; and sharing the remainder equally.

Answer 1

Net income = 124500

Assumption 1: There is no partnership agreement, hence shared profit or loss equally.

1.

Income Summary a/c Dr. To Jahagir's Capital a/c To Zain's Capital a/c To Zohaib's Capital a/c

124500

41500 41500 41500

Assumption 2: Share Profit in the ratio of beginning capital invested i.e. 5:7:8

2.

Income Summary a/c Dr. To Jahagir's Capital a/c To Zain's Capital a/c To Zohaib's Capital a/c

124500

31125 43575 49800

Assumption 3: Salary Given , Jahagir =33000, Zain = 28000, Zohaib = 40000. Total = 101000

Interest on capital = 16000, Jahagir = 4000, Zain = 5600, Zohaib = 6400

Remaining Profit = 124500-101000-16000 = 7500

This remaining profit is distributed equally.

3.

Income Summary a/c Dr. To Jahagir's Capital a/c To Zain's Capital a/c To Zohaib's Capital a/c

7500

2500 2500 2500