Question

The net income of the Linder and Hill partnership is $250,000. The partnership agreement specifies that profits and losses will be shared equally after salary allowances of $200,000 (Linder) and $150,000 (Hill) have been allocated. At the beginning of the year, Linder 's Capital account had a balance of $500,000 and Hill's Capital account had a balance of $650,000. What is the balance of Hill's Capital account at the end of the year after profits and losses have been distributed?

Answer 1

Solution: Calculation of Closing Balance of Hill’s Capital Account:

	Linder	Hill
Opening Balance of Capital Account	5,00,000.00	6,50,000.00
Add: Salary for the Current Year	2,00,000.00	1,50,000.00
Add: 50% of the Current Year Profit	1,25,000.00	1,25,000.00
Closing Balance of Capital Account	8,25,000.00	9,25,000.00

Note: 1) Net Income of the partnership is arrived after deducting the salaries of the partners.

2) As partners are maintaining only Capital Account, the salaries of the partners will be transferred to the Capital Account.

Therefore, balance of Hill's Capital account at the end of the year after profits and losses have been distributed is $9,25,000.00