Question

P and Q were partners sharing profit and losses in the ratio of 2 : 1. Their capitals were ₹ 12,00,000 and ₹ 8,00,000, respectively. They were allowed interest on capital @ 6% p.a., and interest on drawings was to be charged @ 10% p.a. Their drawings during the year were P – ₹ 2,40,000 and Q – ₹ 1,60,000. Q’s share of net divisible profit as per the Profit and Loss Appropriation Account amounted to ₹ 1,60,000. Net profit of the firm before any appropriation was:

Options

• ₹ 4,00,000

• ₹ 3,80,000

• ₹ 5,60,000

• ₹ 5,80,000

Answer 1

₹ 5,80,000

Explanation:

1. Calculate Interest on Capital:

P’s Interest on Capital = `12,00,000 xx 6/100`

= ₹ 72,000

Q’s Interest on Capital = `8,00,000 xx 6/100`

= ₹ 48,000

Total Interest on Capital = 72,000 + 48,000

= ₹ 1,20,000

2. Calculate Interest on Drawing:

P’s Interest on Drawing = `2,40,000 xx 10/100 xx 6/12`

= ₹ 12,000

Q’s Interest on Drawing = `1,60,000 xx 10/100 xx 6/12`

= ₹ 8,000

Total Interest on Drawings = 12,000 + 8,000

= ₹ 20,000

3. Q’s share of net divisible profit is ₹ 1,60,000.

The profit-sharing ratio is 2 : 1, so Q’s share is `1/3` of the total divisible profit.

Total Divisible Profit = ₹ 1,60,000 × 3

= ₹ 4,80,000

4. Net Profit before Appropriation = Total Divisible Profit + Total Interest on Capital − Total Interest on Drawings

= ₹ 4,80,000 + ₹ 1,20,000 − ₹ 20,000

= ₹ 5,80,000