Question

A and B are partners with a profit sharing ratio of 2 : 1 and capitals of ₹ 3,00,000 and ₹ 2,00,000, respectively. They are allowed 6% p.a. interest on their capitals and are charged 10% p.a. interest on their drawings. Their drawings during the year were A ₹ 60,000, and B ₹ 40,000. B’s share of net profit as per the profit and loss appropriation account amounted to ₹ 40,000. Net Profit of the firm before any appropriations was ______.

Options

• ₹ 1,22,000

• ₹ 1,13,000

• ₹ 1,17,000

• ₹ 1,45,000

Answer 1

A and B are partners with a profit sharing ratio of 2 : 1 and capitals of ₹ 3,00,000 and ₹ 2,00,000, respectively. They are allowed 6% p.a. interest on their capitals and are charged 10% p.a. interest on their drawings. Their drawings during the year were A ₹ 60,000, and B ₹ 40,000. B’s share of net profit as per the profit and loss appropriation account amounted to ₹ 40,000. Net Profit of the firm before any appropriations was ₹ 1,45,000.

Explanation:

Dr.	Profit and Loss Appropriation Account				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Interest on Capital:		30,000	By Profit and Loss A/c		1,45,000
A `(3,00,000 xx 6/100)`	18,000		By Interest on Drawing:		5,000
B `(2,00,000 xx 6/100)`	12,000		A `(60,000 xx 10/100 xx 6/12)`	3,000
To Partner’s Share of Profit:		1,20,000	B `(40,000 xx 10/100 xx 6/12)`	2,000
A `(1,20,000 xx 2/3)`	80,000
B `(1,20,000 xx 1/3)`	40,000
		1,50,000			1,50,000

The total distributable profit is calculated by multiplying B’s share by the reciprocal of B’s profit share in the ratio:

= `40,000 xx 3/1`

= ₹ 1,20,000