Use the following information to answer the question below
Ata. Bubu and Chikum were in partnership sharing profits and losses in proportion to their capital contributions:
Capital Drawings
Ata 40,000 8,000
Bubu 30,000 5000
Chikum 20,000 -
Net profit for the year was 40,500 and the interest on capital was 5% per annum.
The balance in Chikum's Current Account is
The balance in Chikum's current account is N9,000.
To calculate the balance in Chikum's current account, we need to first calculate the profit sharing ratio for the partners. The total capital of the partnership is N90,000, and each partner's capital contribution is as follows:
- Ata: N40,000
- Bubu: N30,000
- Chikum: N20,000
The profit sharing ratio for the partners is therefore:
- Ata: 40,000/90,000 = 4/9
- Bubu: 30,000/90,000 = 1/3
- Chikum: 20,000/90,000 = 2/9
Next, we need to calculate the interest on capital for each partner. The interest on capital is calculated as follows:
Interest on capital = Capital * Interest rate
Interest on Ata's capital = N40,000 * 5% = N2,000
Interest on Bubu's capital = N30,000 * 5% = N1,500
Interest on Chikum's capital = N20,000 * 5% = N1,000
The total interest on capital for the partnership is N4,500.
To calculate the profit for each partner, we subtract the interest on capital and drawings from their share of the net profit:
- Ata: (4/9 * N40,500) - N2,000 - N8,000 = N11,000
- Bubu: (1/3 * N40,500) - N1,500 - N5,000 = N3,000
- Chikum: (2/9 * N40,500) - N1,000 - 0 = N6,000
Finally, we can calculate the balance in Chikum's current account as follows:
Balance in Chikum's current account = Chikum's share of the profit - Chikum's interest on capital - Chikum's drawings
Balance in Chikum's current account = N6,000 - N1,000 - 0
Balance in Chikum's current account = N5,000
Therefore, the balance in Chikum's current account is N9,000.