Question

Lata and Mamta are partners with capitals of ₹ 3,00,000 and ₹ 2,00,000, respectively, sharing profits as Lata 70% and Mamta 30%. During the year ended 31st March 2024, they earned a profit of ₹ 2,54,800 before allowing interest on the partner’s loan. The terms of partnership are as follows:

1. Interest on capital is to be allowed @ 7% p.a.
2. Lata is to get a salary of ₹ 2,500 per month.
3. Interest on a loan by Mamta to the firm of ₹ 80,000 for the whole year.
4. Interest on drawings of partners at 8% per annum. Drawings being Lata at ₹ 50,000 and Mamta at ₹ 75,000.
5. 1/10th of the net profit should be transferred to the general reserve.

Prepare the Profit and Loss Appropriation Account.

Hint:

1. Interest on loans will be calculated at 6% p.a.
2. Interest on drawings will be calculated for an average period of 6 months.
3. Transfer to General Reserve will be 10% of net profit, i.e., 10% of 250,000 = ₹ 25,000.

Answer 1

Dr.	Profit and Loss A/c		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Interest on loan by Mamta A/c	4,800	By trading A/c	2,54,800
To Profit and Loss Appropriation A/c	2,50,000
	2,54,800		2,54,800

 

Dr.	Profit and Loss Appropriation A/c				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Interest on capital A/c		35,000	By Profit and Loss A/c		2,50,000
Lata	21,000		By To Interest on Drawing A/c		5,000
Mamta	14,000		Lata	2,000
To Lata’s salary A/c		30,000	Mamta	3,000
To General Reserve A/c		25,000
To profit transferred to:		1,65,000
Lata	1,15,500
Mamta	49,500
		2,55,000			2,55,000

Working Note:

1. Interest on Capital:

Lata = `3,00,000 xx 7/100`

= 21,000

Mamta = `2,00,000 xx 7/100`

= 14,000

2. Interest on Drawings :

Lata = `50,000 xx 8/100 xx 6/12`

= 2,000

Mamta = `75,000 xx 8/100 xx 6/12`

= 3,000

3. Transfer to General Reserve will be 10% of Net Profit.

Net Profit = 2,54,800 – 4,800 

= 2,50,000

10% of Net Profit = `10/100 xx 2,50,000`

= 25,000