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Question
On 1st April, 2023, A, B and C started a business in partnership and contributed ₹ 1,00,000, ₹ 80,000 and ₹ 60,000, respectively, as their capitals. They agreed to share profits and losses in the ratio of 3 : 2 : 1 after allowing interest on capital @ 10% p.a. and charging interest on drawings @ 12% p.a. The drawings of the partners during the year ended 31st March, 2024, were A ₹ 12,000, B ₹ 15,000 and C ₹ 6,000.
C, to whom a salary of ₹ 1,000 p.m. was payable, had guaranteed that the firm would earn a profit of ₹ 75,000 before charging or allowing interest and salary payable to the partners. The actual profit before interest and salary amounted to ₹ 70,000.
Prepare the Profit and Loss Appropriation A/c and the Partner’s Capital Accounts.
Hint: Firm’s profit is ₹ 70,000 (i.e., ₹ 5,000 less than the amount guaranteed by C). As such, ₹ 5,000 will be debited to C’s Capital A/c and credited to Profit and Loss Appropriation A/c.
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Solution
| Dr. | Profit and Loss Appropriation A/c for the year ended 31st March, 2024 |
Cr. | |||
| Particulars | Amount (₹) | Amount (₹) | Particulars | Amount (₹) | Amount (₹) |
| To Interest On Capital A/c | 24,000 | By Net Profit A/c | 70,000 | ||
| A | 10,000 | By Interest On Drawing A/c | 1,980 | ||
| B | 8,000 | A | 720 | ||
| C | 6,000 | B | 900 | ||
| To C’s salary | 12,000 | C | 360 | ||
| To Profit transferred to: | 40,980 | By C’s Capital A/c | 5,000 | ||
| A | 20,490 | ||||
| B | 13,660 | ||||
| C | 6,830 | ||||
| 76,980 | 76,980 | ||||
| Dr. | Partner’s Capital Account | Cr. | |||||
| Particulars | A (₹) | B (₹) | C (₹) | Particulars | A (₹) | B (₹) | C (₹) |
| To Profit and Loss Appropriation A/c | - | - | 5,000 | By Balance b/d | 1,00,000 | 80,000 | 60,000 |
| To Drawings | 12,000 | 15,000 | 6,000 | By Interest On Capital A/c | 10,000 | 8,000 | 6,000 |
| To Interest on Drawing | 720 | 900 | 360 | By salary | - | - | 12,000 |
| To Balance c/d | 1,17,770 | 85,760 | 73,470 | By Profit and Loss Appropriation A/c | 20,490 | 13,660 | 6,830 |
| 1,30,490 | 1,01,660 | 84,830 | 1,30,490 | 1,01,660 | 84,830 | ||
Working Note:
1. Calculate Interest on Capital:
A = `1,00,000 xx 10/100`
= 10,000
B = `80,000 xx 10/100`
= 8,000
C = `60,000 xx 10/100`
= 6,000
2. Calculate Interest on Drawing:
A = `12,000 xx 12/100 xx 6/12`
= 720
B = `15,000 xx 12/100 xx 6/12`
= 900
C = `6,000 xx 12/100 xx 6/12`
= 360
