Question

Active, Blunt and Circle started a business on 1st April, 2023, with capitals of ₹ 4,50,000, ₹ 6,00,000 and ₹ 3,50,000 respectively. According to the partnership agreement:

1. Profit earned in any year will be distributed as under:
   Upto ₹ 2,70,000 – equally
   Excess over ₹ 2,70,000 – one-half to Active, one-sixth to Blunt and one-third to Circle.
2. Provide interest on capital and drawing @ 6% p.a.
3. Circle is entitled to get a monthly salary of ₹ 4,000, and Blunt is entitled to get a monthly salary of ₹ 6,000. In addition to the above, Circle and Blunt are entitled to get a commission of 5% each on net profit after charging such commission.

Drawings of the partners during the year were:

• Active withdrew regularly ₹ 5,000 at the beginning of every month.
• Blunt withdrew regularly ₹ 7,000 at the end of every month.
• Circle withdrew ₹ 80,000 during the year.

The profit of the firm for the year ending 31st March, 2024, before charging all of the above adjustments, was ₹ 6,60,000.

Distribute the profit among the partners and prepare the partner’s current accounts.

Hint: Commission to Blunt and Circle: ₹ `6,60,000 xx 5/110` = ₹ 30,000 each.

Answer 1

Dr.	Profit and Loss Appropriation Account for the year ended 31st March, 2024						Cr.
Date	Particulars	Amount (₹)	Amount (₹)	Date	Particulars	Amount (₹)	Amount (₹)
2024				2024
March 31	To Commission:		60,000	March 31	By Profit and Loss A/c (Net Profit for the year)		6,60,000
	Blunt	30,000		March 31	By Interest on Drawings:		6,660
	Circle	30,000			Active `60,000 xx 6/100 xx 6.5/12` =	1,950
March 31	To Salary:		1,20,000		Blunt `84,000 xx 6/100 xx 5.5/12` =	2,310
	Blunt	72,000			Circle `80,000 xx 6/100 xx 6/12` =	2,400
	Circle	48,000
March 31	To Interest on Capital:		84,000
	Active	27,000
	Blunt	36,000
	Circle	21,000
March 31	To Profit transferred to:		4,02,660
	Active’s Current A/c	1,56,330
	Blunt’s Current A/c	1,12,110
	Circle’s Current A/c	1,34,220
			6,66,660				6,66,660

 

Dr.	Partner’s Current Account								Cr.
Date	Particulars	Active (₹)	Blunt (₹)	Circle (₹)	Date	Particulars	Active (₹)	Blunt (₹)	Circle (₹)
2024					2024
March 31	To Drawings	60,000	84,000	80,000	March 31	By Commission		30,000	30,000
March 31	To Interest on Drawings	1,950	2,310	2,400	March 31	By Salary		72,000	48,000
March 31	To balance c/d	1,21,380	1,63,800	1,50,820	March 31	By Interest on Capital	27,000	36,000	21,000
					March 31	By P and L App. A/c	1,56,330	1,12,110	1,34,220
		1,83,330	2,50,110	2,33,220			1,83,330	2,50,110	2,33,220

Working Notes:

1. Commission to partners (Blunt and Circle) = `5/110 xx 6,60,000`

= 30,000 each

2. Divisible Profit = 6,60,000 + 6,660 – 60,000 – 1,20,000 – 84,000

= 4,02,660

	Active (₹)	Blunt (₹)	Circle (₹)
Up to 2,70,000 equally	90,000	90,000	90,000
402660 – 270000 = 1,32,660 in `1/2: 1/6: 1/3`	66,330	22,110	44,220
	1,56,330	1,12,110	1,34,220