Question

P and Q are partners sharing profits and losses in the ratio of 60 : 40. On 1st April, 2023, their capitals were P – ₹ 5,00,000 and Q – ₹ 3,00,000. During the year ended 31st March, 2024, they earned a profit of ₹ 5,76,000 before taking into account any of the following terms of partnership:

1. Interest on the capital is to be charged @ 8% p.a.
2. Q will get a salary of ₹ 10,000 per month.
3. Q will get a commission of 5% on net profits after charging his commission.
4. P is entitled to an annual rent of ₹ 2,40,000 for the use of his premises by the firm.

The partner’s drawings for the year were P – ₹ 40,000 and Q – ₹ 30,000. After considering the above factors, you are required to prepare the Profit and Loss Appropriation Account and the Capital Accounts of the Partners.

Hints:

1. Net Profit Credited to Profit and Loss Appropriation A/c: ₹ 5,76,000 - Rent ₹ 2,40,000 = ₹ 3,36,000
2. Q’s Commission `5/105` of ₹ 3,36,000.
3. Rent is credited to P’s Capital Account.

Answer 1

Dr.	Profit and Loss Appropriation Account for the year ended 31st March, 2024				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Interest on Capitals A/c		64,000	By Profit and Loss A/c		3,36,000
P	40,000
Q	24,000
To Q’s Salary		1,20,000
To P’s Commission		16,000
To Profit transferred to:		1,36,000
P’s Capital A/c	81,600
P’s Capital A/c	54,400
		3,36,000			3,36,000

 

Dr.	Partner’s Capital Accounts						Cr.
Date	Particulars	P	Q	Date	Particulars	P	Q
2024				2023
March 31	To Drawings	40,000	30,000	April 1	By balance b/d	5,00,000	3,00,000
				2024
				March 31	By Interest on Capital	40,000	24,000
				March 31	By Salary	-	1,20,000
				March 31	By Rent	2,40,000	-
				March 31	By Commission	-	16,000
March 31	To balance c/d	8,21,600	4,84,400	March 31	By Profit and Loss Appropriation Account	81,600	54,400
		8,61,600	5,14,400			8,61,600	5,14,400

Working Note:

1. Interest on Capitals: 

(a) P = `5,00,000 xx 8/100 `

= 40,000

(b) Q = `3,00,000 xx 8/100`

= 24,000

2. Calculation of net profit to be credited to Profit and Loss Appropriation A/c 

= 5,76,000 – 2,40,000 (Rent due to P)

= 3,36,000

3. Commission to Q = `5/105 xx 3,36,000`

= 16,000

4. Rent due to P has been treated as a charge against profits. It is debited to the Profit and Loss A/c and has been credited to the Partner’s Capital Account.