Question

Anita and Tony, each doing business as sole proprietors, started a partnership on 1^st April, 2018. Anita brought in Plant and Machinery valued at ₹ 5,00,000 whereas Tony brought in furniture costing ₹ 50,000 and ₹ 7,00,000 in cash.

Since the business needed more funds, Tony gave a loan of ₹ 2,00,000 to the firm on 30^th June, 2018.

Their partnership deed provided for:

1. Interest on capital to be allowed @ 10% per annum.
2. Interest on drawings to be charged @ 6% per annum.
3. Anita to be given a commission of 4% on the corrected net profits before charging commission.
4. Tony to be given a salary of ₹ 12,000 per annum.

Tony withdrew ₹ 5,000 at the end of every month and Anita withdrew ₹ 30,000 on 1^st August, 2018.

The net profit of the firm, for the year 2018-19, after debiting Tony’s salary of ₹ 12,000 per annum but before considering any interest due to and due from the partners, was ₹ 4,00,000.

You are required to prepare for the year 2018-19:

1. Profit and Loss Appropriation Account.
2. Partner’s Capital Accounts.

Answer 1

(i)

Dr.	Profit and Loss Appropriation Account for the year ended 31 March 2019				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Interest on Capital A/c		1,25,000	By Profit and Loss A/c (NP) (4,00,000 + 12,000 - 9000)		4,03,000
Anita	50,000		By Interest on Drawings A/c:		2,850
Tony	75,000		Anita	1,200
To Commission to Anita		16,120	Tony	1,650
To Salary to Tony		12,000
To Profit Transfer:		2,52,730
Anita	1,26,365
Tony	1,26,365
		4,05,850			4,05,850

Working Note:

Calculation of Interest on Drawings:

Anita = `30,000xx6/100xx8/12`

= ₹ 1,200

Tony = `5,000xx6/100xx((11+10+9+8+7+6+5+4+3+2+1)/12)`

= `5,000xx6/100(5.5)`

= ₹ 1,650

(ii)

 

Dr.	Partner’s Capital A/c				Cr.
Particulars	Anita (₹)	Tony (₹)	Particulars	Anita (₹)	Tony (₹)
To Drawings A/c	30,000	60,000	By P & M	5,00,000	-
To Interest on Drawings	1,200	1,650	By Interest on Capital	50,000	75,000
To Balance c/d	6,61,285	9,01,715	By Furniture	-	50,000
			By Cash/Bank	-	7,00,000
			By Commission	16,120	-
			By Salary	-	12,000
			By P & L A/c	1,26,365	1,26,365
	6,92,485	9,63,365		6,92,485	9,63,365

Working Notes:

Interest on Capital

Anita = `5,00,000xx10/100` = 50,000 (₹ 5,00,000 as Plant and Machinery)

Tony = `7,50,000xx10/100` = 75,000 (₹ 7,50,000 i.e., Furniture of ₹ 50,000 and ₹ 7,00,000 in Cash)