Question

A and B are partners with Capitals of ₹ 10,00,000 and ₹ 6,00,000 respectively. Interest on Capital is agreed @ 5% p.a. B is to be allowed a salary of ₹ 10,000 per month. During the year 2023–24, the profits prior to the calculation of interest on capital but after charging B's salary amounted to ₹ 3,00,000. Manager is to be allowed a commission of 5% of the profit after charging such commission.

Based on the above information you are required to answer the following question:

Manager's Commission will be recorded ______.

Options

• In Profit & Loss Account

• In Profit & Loss Appropriation Account

• In Revaluation Account

• In Realisation Account

Answer 1

Manager's Commission will be recorded in Profit & Loss Account.

Explanation:

Profit before manager's commission (after B's salary but before interest on capital):

• Profit = ₹ 3,00,000
• Less: Interest on Capital:
  • A = ₹ 10,00,000 × 5% = ₹ 50,000
  • B = ₹ 6,00,000 × 5% = ₹ 30,000
• Profit after Interest on Capital = ₹ 2,20,000

Manager's Commission:

`"Commission" = 9/105 xx 2,20,000 = ₹ 10,476`