Question

Parul and Rajul were partners in a firm, sharing profits and losses in the ratio of 5 : 3. The balance in their fixed capital accounts on 1^st April, 2023 were: Parul ₹ 6,00,000 and Rajul ₹ 8,00,000. The partnership deed provided for allowing interest on capital at 12% per annum. The net profit of the firm for the year ended 31^st March, 2024 was ₹ 1,26,000.

Prepare Profit and Loss Appropriation Account for the year ended 31^st March, 2024. Show your working clearly.

Answer 1

Dr.	Profit and Loss Appropriation Account for the year ended 31st March, 2024		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Interest on Capital A/c:		By Net Profit A/c	1,26,000
Parul’s Capital	54,0000
Rajul’s Capital	72,000
	1,26,000		1,26,000

Working Note:

1. Total Appropriation = Parul’s Interest on Capital + Rajul’s Interest on Capital

= (₹ 6,00,000 × 12%) + (₹ 8,00,000 × 12%)

= ₹ 72,000 + ₹ 96,000 

= ₹ 1,68,000

2. Total appropriation is greater than profit available, so the profit of ₹ 1,26,000 will be distributed in the appropriation ratio (3 : 4).

Parul’s Share = `(₹ 1,26,000xx 3)/7`

= ₹ 54,000

Rajul’s Share = `(₹ 1,26,000xx 4)/7`

= ₹ 72,000