Question

Kavita and Leela are partners with capitals of ₹ 6,00,000 and ₹ 4,00,000 and sharing profits and losses in the ratio of 2 : 1. Their partnership deed provides that interest on capital shall be provided @ 8% p.a., and it is to be treated as a charge against profits. Prepare relevant accounts to allocate the profit in the following alternative cases:

1. If profit for the year is ₹ 1,10,000.
2. If profit for the year is ₹ 35,000.
3. If loss for the year is ₹ 10,000.

Hint: Interest on capital will be recorded in the profit and loss account since it is a charge against profits.

Answer 1

i.

Dr.	Profit and Loss Appropriation Account				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Profit transferred to:		30,000	By Profit and Loss A/c (Profit for the year)		30,000
Kavita’s Capital A/c `(2/3)`	20,000
Leela’s Capital A/c `(1/3)`	10,000
		30,000			30,000

 

Dr.	Profit and Loss Account				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Interest on Capital:		80,000	By Balance b/d (Profit for the year)		1,10,000
Kavita	48,000
Leela	32,000
To Profit transferred to Profit and Loss Appropriation A/c		30,000
		1,10,000			1,10,000

ii.

Dr.	Profit and Loss Account				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Interest on Capital:		80,000	By Balance b/d (Profit for the year)		35,000
Kavita	48,000		By loss transferred to:		45,000
Leela	32,000		Kavita’s Capital A/c `(2/3)`	30,000
			Leela’s Capital A/c `(1/3)`	15,000
		80,000			80,000

iii.

Dr.	Profit and Loss Account				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Balance b/d (Loss for the year)		10,000	By loss transferred to:		90,000
To Interest on Capital:		80,000	Kavita’s Capital A/c `(2/3)`	60,000
Kavita	48,000		Leela’s Capital A/c `(1/3)`	30,000
Leela	32,000
		90,000			90,000