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Question
Hill, Vale, and Dale are in partnership, sharing profits and losses in the ratio of 2 : 2 : 1 respectively. Interest is charged on Partner’s Drawings @ 6% p.a. and credited to Partner’s Capital Account Balances @ 6% p.a.
Vale is the firm’s Marketing Manager and for his specialised services, he is credited with a salary of ₹ 2,000 per quarter.
Drawing the year ended 31st March, 2024, the net profit of the firm was ₹ 62,000, and the partner’s drawings were:
| ₹ | |
| Hill | 12,000 |
| Vale | 8,000 |
| Dale | 8,000 |
In each case, the above drawings were made in two equal instalments on 30th September, 2023, and 31st March, 2024.
On 30th September, 2023, the firm agreed that Hill should withdraw ₹10,000 from his capital account and the Dale should subscribe a similar amount to his capital account.
The balances of the partner’s accounts on 1st April, 2023, were:
| All Credit Balances | ||
| Capital Accounts (₹) | Current Accounts (₹) | |
| Hill | 80,000 | 6,400 |
| Vale | 70,000 | 5,600 |
| Dale | 60,000 | 4,800 |
Transfer 5% of the net profit to the Reserve Fund of the firm.
Required:
- Prepare the firm’s Profit and Loss Appropriation Account for the year ended 31st March, 2024.
- Prepare the Partner’s Capital and Current Accounts for the year ended 31st March, 2024.
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Solution
| Dr. | In the Books of Hill, Vale and Dale Profit and Loss Appropriation Account for the year ended 31st March, 2024. |
Cr. | |||
| Particulars | Amount (₹) | Amount (₹) | Particulars | Amount (₹) | Amount (₹) |
| To Reserve Fund (5% of ₹ 62,000) | 3,100 | By Profit and Loss A/c (Net Profit) |
62,000 | ||
| To Interest on Capital A/c | 12,600 | By Interest on Drawings A/c | 420 | ||
| Hill | 4,500 | Hill | 180 | ||
| Vale | 4,200 | Vale | 120 | ||
| Dale | 3,900 | Dale | 120 | ||
| To Salary A/c Vale (₹ 2,000 × 4) |
8,000 | ||||
| To Net Profit transferred to: | 38,720 | ||||
| Hill’s Current A/c | 15,488 | ||||
| Vale’s Current A/c | 15,488 | ||||
| Dale’s Current A/c | 7,744 | ||||
| 62,420 | 62,420 | ||||
| Dr. | Partner’s Capital Account | Cr. | |||||||
| Date | Particulars | Hill | Vale | Dale | Date | Particulars | Hill | Vale | Dale |
| 2023 | 2023 | ||||||||
| Sep. 30 | To Bank A/c | 10,000 | - | - | April 1 | By Balance b/d | 80,000 | 70,000 | 60,000 |
| 2024 | Sep. 30 | By Bank A/c | - | - | 10,000 | ||||
| Mar. 31 | To Balance c/d | 70,000 | 70,000 | 70,000 | |||||
| 80,000 | 70,000 | 70,000 | 80,000 | 70,000 | 70,000 | ||||
| Dr. | Partner’s Current Account | Cr. | |||||||
| Date | Particulars | Hill | Vale | Dale | Date | Particulars | Hill | Vale | Dale |
| 2024 | 2023 | ||||||||
| Mar. 31 | To Drawings A/c | 12,000 | 8,000 | 8,000 | April 1 | By Balance b/d | 6,400 | 5,600 | 4,800 |
| Mar. 31 | To Interest on Drawings A/c | 180 | 120 | 120 | 2024 | ||||
| Mar. 31 | To Balance c/d | 14,208 | 25,168 | 8,324 | Mar. 31 | By Interest on Capital A/c | 4,500 | 4,200 | 3,900 |
| Mar. 31 | By Salary | - | 8,000 | - | |||||
| Mar. 31 | By Profit and Loss Appropriation A/c (Profit) | 15,488 | 15,488 | 7,744 | |||||
| 26,388 | 33,288 | 16,444 | 26,388 | 33,288 | 16,444 | ||||
Working Note:
(1) Interest on Capital @ 6% p.a.
Hill: On ₹ 80,000 for 6 months:
= `80,000 xx 6/100 xx 6/12`
= ₹ 2,400
On ₹ 70,000 for 6 months:
= `70,000 xx 6/100 xx 6/12`
= ₹ 2,100
Total Interest on Capital (Hill) = 2,400 + 2,100
= ₹ 4,500
Vale: On ₹ 70,000 for 1 year:
= `70,000 xx 6/100`
= ₹ 4,200
Dale: On ₹ 60,000 for 6 months:
= `60,000 xx 6/100 xx 6/12`
= ₹ 1,800
On ₹ 70,000 for 6 months:
= `70,000 xx 6/100 xx 6/12`
= ₹ 2,100
Total Interest on Capital (Dale) = 1,800 + 2,100
= ₹ 3,900
(2) Interest on Drawings @ 6% p.a.
Hill: On ₹ 6,000 for 6 months:
= `6,000 xx 6/100 xx 6/12`
= ₹ 180
Vale and Dale: On ₹ 4,000 for 6 months:
= `4,000 xx 6/100 xx 6/12`
= ₹ 120
