Question

A, B and C are in partnership sharing profits and losses in the ratio of 2 : 1 : 1. It is agreed that interest on capital will be allowed @ 5 percent per annum, and interest on drawings will be charged @ 4 percent per annum. No interest will be allowed or charged on current accounts.

The following are the particulars of the capital, current and drawings accounts of the partners:

	A (₹)	B (₹)	C (₹)
Capital A/cs (1.4.2023)	1,50,000	80,000	60,000
Current A/cs (l.4.2023)	20,000	10,000	Dr. (10,000)
Drawings	30,000	20,000	20,000
Interest on drawings (2023-24)	1,000	280	700

The draft accounts for the year ending 31.3.2024 showed a net profit of ₹ 1,20,000 before taking into account interest on capital and drawings and subject to the following rectification of errors:

1. Life insurance premium of A amounting to ₹ 1,500 paid by the firm on 31st March, 2024, has been charged to the miscellaneous expenditure account.
2. Repairs of machinery amounting to ₹ 20,000 has been debited to the plant account, and depreciation thereon charged @ 20 percent.
3. An item in the inventory was valued at ₹ 45,000 but was subsequently found to be worth ₹ 30,000 only.

You are required to prepare the Profit and Loss Appropriation Account for the year ended 31st March, 2024, and the Partner’s Current Accounts for the year.

Answer 1

Dr.	Profit and Loss Appropriation Account for the year ended 31st March 2022				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Interest on Capital A/cs:		14,500	By Profit and Loss A/c (Net Profit)		90,500
A	7,500		By Interest on Drawings A/cs:		1,980
B	4,000		A	1,000
C	3,000		B	280
To Partner’s Current A/c:		77,980	C	700
A	38,990
B	19,495
C	19,495
		92,480			92,480

 

Dr.	Partner’s Current Account						Cr.
Particulars	A (₹)	B (₹)	C (₹)	Particulars	A (₹)	B (₹)	C (₹)
To Balance b/d	-	-	10,000	By Balance b/d	20,000	10,000	-
To Drawings A/c	30,000	20,000	20,000	By Interest on Capitals	7,500	4,000	3,000
To Interest on Drawings	1,000	280	700	By Profit and Loss Appropriation A/c	38,990	19,495	19,495
To Life insurance	1,500	-	-
To balance c/d	33,990	13,215	-	By balance b/d	-	-	8,205
	66,490	33,495	30,700		66,490	33,495	30,700

Working Note:

Calculation of net profit before appropriation:

	Amount (₹)
Net profit before adjustments	1,20,000
Add: Life insurance premium paid for A	1,500
	1,21,500
Less: Depreciation on machinery @ 20% (20,000 − 4,000)	16,000
	1,05,500
Less: Inventory overvalue (45,000 − 30,000)	15,000
	90,500

Interest on Capital:

A = `1,50,000 xx 5/100`

= ₹ 7,500

B = `80,000 xx 5/100`

= ₹ 4,000

C = `60,000 xx 5/100`

= ₹ 3,000