Question

Arti and Bina are partners with profit sharing ratio of 2 : 1 and capitals of ₹ 5,00,000 and ₹ 4,00,000, respectively. They are allowed 8% p.a. interest on their capitals and are charged 10% p.a. interest on their drawings. Their drawings during the year were Arti ₹ 80,000 and Bina ₹ 60,000. Arti’s share of net profit as per the profit and loss appropriation account amounted to ₹ 1,00,000. Net profit of the firm before any appropriations was ______.

Options

• ₹ 2,08,000

• ₹ 2,15,000

• ₹ 1,79,000

• ₹ 2,22,000

Answer 1

Arti and Bina are partners with profit sharing ratio of 2 : 1 and capitals of ₹ 5,00,000 and ₹ 4,00,000, respectively. They are allowed 8% p.a. interest on their capitals and are charged 10% p.a. interest on their drawings. Their drawings during the year were Arti ₹ 80,000 and Bina ₹ 60,000. Arti’s share of net profit as per the profit and loss appropriation account amounted to ₹ 1,00,000. Net profit of the firm before any appropriations was ₹ 2,15,000.

Explanation:

Arti’s share of the net profit is ₹ 1,00,000, and the profit-sharing ratio is 2 : 1.

Total Divisible Profit = `1,00,000 xx 2/3`

= 1,50,000

Calculate Interest on Capital:

Arti’s Interest on Capital = `5,00,000 xx 8/100`

= 40,000

Bina’s Interest on Capital = `4,00,000 xx 8/100`

= 32,000

Total Interest on Capital = 40,000 + 32,000

= 72,000

Calculate Interest on Drawings:

Arti’s Interest on Drawing = `80,000 xx 10/100 xx 6/12`

= 4,000

Bina’s Interest on Drawing = `60,000 xx 10/100 xx 6/12`

= 3,000

Total Interest on Drawing = 4,000 + 3,000

= 7,000

Net Profit = 1,50,000 + 72,000 − 7,000

= ₹ 2,15,000