It is well known to all that no partner can entertain any salary or commission unless it is provided by the partnership deed. The salary or commission to a partner could be allowed to her/him if she/he does the most of the work of the firm according to the agreement among the partners. The salaries or commission is paid to the partners for the sake of sacrificing their time and labor to the firm as an emolument.
Commission may be allowed to a partner as a percentage of net profit before charging such commission or after charging such commission. If it to be allowed as a percentage of net profit before charging such commission, it is calculated as:
Commission may be allowed to a partner as a percentage of net profit before charging such commission or after charging such commission. If it to be allowed as a percentage of net profit before charging such commission, it is calculated as:
Commission= Net profit before commission X Rate of commission/100
If it is to be allowed as a percentage of net profit after charging such commission, it is computed as follows:
Net profit before commission X Rate of commission/100+Rate of commission
The salaries or commission to partners is a appropriation of profit rather than charge so it is debited to profit and loss appropriation account and shall be credited to respective partners' capital accounts if capitals are fluctuating and to be credited to partners current account if capitals are fixed in nature.
Salary/Commission ...........................Dr.
To Partners' capital/current A/c
Profit and loss appropriation A/C.......................Dr.
To Salary/Commission
If it is to be allowed as a percentage of net profit after charging such commission, it is computed as follows:
Net profit before commission X Rate of commission/100+Rate of commission
The salaries or commission to partners is a appropriation of profit rather than charge so it is debited to profit and loss appropriation account and shall be credited to respective partners' capital accounts if capitals are fluctuating and to be credited to partners current account if capitals are fixed in nature.
Salary/Commission ...........................Dr.
To Partners' capital/current A/c
Profit and loss appropriation A/C.......................Dr.
To Salary/Commission