Question

A and B are partners sharing profits and losses in the ratio of their capitals which were ₹ 6,00,000 and ₹ 4,00,000 respectively on 1st April, 2023. The partnership deed provides that: Both partners will get monthly salary of ₹ 20,000 each; Interest on capital will be allowed @ 8% p.a. A will get a quarterly rent of ₹ 24,000 for the use of his property by the firm. On 1st July, 2023 A and B granted loans of ₹ 1,00,000 and 50,000 respectively to the firm. During the year ended 31st March 2024, the firm incurred a loss of ₹ 17,250 before any adjustment is made as per partnership deed.

Prepare an account showing the distribution of profit/loss.

Hint: Salary to Partners and interest on capitals will not be provided and P & L App. A/c will not be prepared since the firm has suffered loss.

Answer 1

Profit & Loss Account For the year ended 31st March, 2024
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Net Loss b/d		17,250	By Net Loss transferred to:
To Rent to A		96,000	A's Capital A/c	72,000
To Interest on Partners' Loans			B's Capital A/c:	48,000	1,20,000
A's Loan:	4,500
B's Loan:	2,250	6,750
Total		1,20,000	Total		1,20,000

Working note:

Profit Sharing Ratio

Capital Ratio (A : B): 6,00,000 : 4,00,000 = 3 : 2

Charges Against Profit (These must be paid even if the firm incurs a loss, and are recorded in the Profit & Loss Account)

A's Rent: 24,000 × 4 quarters = 96,000

Interest on Loans (from 1st July 2023 to 31st March 2024 = 9 months):

Since no interest rate is specified in the deed, the statutory rate of 6% p.a. is applicable as per the Indian Partnership Act, 1932.

Interest on A's Loan: `1,00,000 xx 6% xx 9/12 = 4,500`

Interest on B's Loan: `50,000 xx 6% xx 9/12 = 2,250`

Total Interest on Loan = ₹ 6,750

Total Net Loss Calculation

• Initial Loss Given: ₹ 17,250
• Total Loss after Charges:

17,250 (Initial loss) + 96,000 (Rent) + 6,750 (Interest on Loan) = 1,20,000

Distribution of Loss (3 : 2)

A's Share: `1,20,000 xx 3/5 = 72,000`

B's Share: `1,20,000 xx 2/5 = 48,000`