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 amount to ______.

Options

• ₹ 21,000

• ₹ 20,000

• ₹ 8,571

• ₹ 16,190

Answer 1

Manager's Commission will amount to ₹ 20,000.

Explanation:

Dr.	PROFIT AND LOSS ACCOUNT		Cr.
Particulars	₹	Particulars	₹
To Manager's Commission (5/105 of 4,20,000)	20,000	By Profit for the year (being profit before B's Salary) (₹3,00,000 + ₹1,20,000)	4.20,000
To Net Profit transferred to Profit & Loss Appropriation A/c	4,00,000
	4,20,000		4,20,000

Manager's Commission will be calculated before any appropriations i.e., before charging partner's (B's) salary.

Dr.	PROFIT AND LOSS APPROPRIATION ACCOUNT			Cr.
Particulars	₹	₹	Particulars	₹
To B's Salary		1,20,000	By Profit & Loss A/c	4,00,000
To Interest on Capital
A: 5% on 10,00,000	50,000
B: 5% on 6,00,000	30,000	80,000
To Profit transferred to:
A's Capital A/c (1/2)	1,00,000
B's Capital A/c (1/2)	1,00,000	2,00,000
		4,00,000		4,00,000