Question

Krish and Shail entered into a partnership on 1st October, 2022, with capital contributions of ₹ 48,000 and ₹ 36,000, respectively.

On 1st January, 2023, Shail advanced a loan of ₹ 12,000 to the firm. The terms of the partnership agreement are as follows:

1. Interest on capital to be allowed at 12% per annum.
2. Interest on drawings to be charged @ 10% per annum.
3. Krish is to be entitled to a commission of 2% on the turnover.
4. Each partner is to get a salary of ₹ 1,200 per month.
5. Profits and losses are to be shared in the ratio of 4 : 3.

The turnover for the period under consideration was ₹ 2,00,000. The drawings of the partners were Krish, ₹ 4,000, and Shail, ₹ 2,000.

The profit of the firm for the year ended 31st March, 2023, before providing for any interest, was ₹ 1,10,000.

You are required to prepare for the year 2022-23:

1. Profit and Loss Appropriation Account.
2. Shail’s Loan Account.

Answer 1

Dr.	Profit and Loss Appropriation Account For the year ended 31st March 2023				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Interest on capital:		5,040	By Profit and Loss A/c		1,09,820
Krish	2,880		By Interest on drawings:		150
Shail	2,160		Krish	100
To salary:		14,400	Shail	50
Krish	7,200
Shail	7,200
To commission to Krish		4,000
To Profit transferred to:		86,530
Krish’s capital A/c	49,446
Shail’s capital A/c	37,084
		1,09,970			1,09,970

 

Dr.	Shail’s loan Account				Cr.
Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2023			2023
March 31	To Balance c/d	12,180	January 1	By Bank A/c	12,000
			March 31	By Interest on Loan A/c	180
		12,180			12,180

Working Notes:

1. Interest on Shail’s loan:

In the absence of any provision in the partnership deed, the Indian Partnership Act,1932 is applicable, and hence, interest will be calculated @ 6% p.a. for 3 months (1st January - 31st March 2023).

= `12,000 xx 6/100 xx 3/12`

= 180

2. Calculation of Net Profit to be transferred to Profit and Loss Appropriation Account:

As profit of 1,10,000 is before providing any interest, interest on Shail’s loan will be deducted from net profit (as interest on partner’s loan is a charge against profit).

Net Profit = 1,10,000 – 180

 = 1,09,820

3. Interest on capital:

Krish = `48,000 xx 12/100 xx 6/12`

= 2,880

Shail = `36,000 xx 12/100 xx 6/12`

= 2,160

4. Salaries to partners:

Each partner’s salary = 1,200 × 6

= 7,200

5. Interest on drawings:

As per the textbook, in the absence of the date of withdrawal, interest should be charged for six months on the whole of the amount because it will be assumed that the drawings were made evenly throughout the year. But here, we must calculate interest for only 6 months. Therefore, we must divide the interest by 2.

Krish = `4,000 xx 10/100 xx 6/12 xx 1/2`

= 100

Shail = `2,000 xx 10/100 xx 6/12 xx 1/2`

= 50