Question

Ramesh and Suresh were partners in a firm sharing profits in the ratio of their capitals contributed on commencement of business which were Rs 80,000 and Rs 60,000 respectively. The firm started business on April 1, 2016. According to the partnership agreement, interest on capital and drawings are 12% and 10% p.a., respectively. Ramesh and Suresh are to get a monthly salary of Rs 2,000 and Rs 3,000, respectively.
The profits for year ended March 31, 2017 before making above appropriations was Rs 1,00,300. The drawings of Ramesh and Suresh were Rs 40,000 and Rs 50,000, respectively. Interest on drawings amounted to Rs 2,000 for Ramesh and Rs 2,500 for Suresh. Prepare Profit and Loss Appropriation Account and partners’ capital accounts, assuming that their capitals are fluctuating.

Answer 1

Profit and Loss Appropriation Account

Dr.                                                                                Cr.

Particulars			Amount Rs	Particulars			Amount Rs
Interest on Capital				Profit and Loss			1,00,300
Ramesh		9,600	16,800	Interest on Drawings
Suresh		7,200		Ramesh		2,000	4,500
Partners’ Salaries				Suresh		2,500
Ramesh		24,000	60,000
Suresh		36,000
Profit Transferred to
Ramesh’s Capital {28,000 × (4/7)}			16,000
Suresh’s Capital {28,000 × (3/7)}			12,000
			1,04,800				1,04,800

Partners’ Capital Account

Dr.                                                                                 Cr.

Particulars	Ramesh	Suresh	Particulars	Ramesh	Suresh
Drawings	40,000	50,000	Cash	80,000	60,000
Interest on Drawings	2,000	2,500	Interest on Capital	9,600	7,200
Balance c/d	87,600	62,700	Partners’ Salaries	24,000	36,000
			Profit & Loss Appropriation	16,000	12,000
	1,29,600	1,15,200		1,29,600	1,15,200

Capital Ratio = Ramesh : Suresh

                     = 80000 : 60000

                     = 4 : 3