Question

A and B are partners in a firm sharing profits or losses in the ratio of 2 : 3 with capitals of ₹ 4,00,000 and ₹ 8,00,000 respectively, on 1st April, 2023. Each partner is entitled to 10% p.a. interest on his capital. B is entitled to a commission of 10% on net profit before charging any commission. A is entitled a commission of 8% of net profit after charging all commissions. Net profit for the year ended 31st March, 2024, was ₹ 4,80,000.

Prepare Profit and Loss Appropriation Account.

Answer 1

Dr.	Profit and Loss Appropriation Account				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To interest on capital A/c		1,20,000	By Profi and Loss A/c		4,80,000
A	40,000
B	80,000
To Partner’s Commission A/c		80,000
A	32,000
B	48,000
To profit transferred to:		2,80,000
A	1,12,000
B	1,68,000
		4,80,000			4,80,000

Working Note:

Net Profit (before commission) = ₹4,80,000

Commission to B (10% of Net Profit before commission) = `4,80,000 xx 10/100`

= 48,000

Profit after charging B’s commission = 4,80,000 − 48,000 = ₹ 4,32,000

Commission to A (8% of Net Profit after charging all commissions) = `4,32,000 xx 8/108`

= 32,000