Question

Ruma and Neha started business on 1^st April, 2021, with fixed capitals of ₹ 4,00,000 and ₹ 3,50,000 respectively.

On 1^st October, 2021, they decided that their total capital (fixed) should be ₹ 8,00,000, in their profit-sharing ratio of 3 : 2.

Accordingly, they introduced extra capital or withdrew excess capital.

Their partnership deed provided for the following:

1. Interest on capital to be allowed @ 10% per annum.
2. A monthly salary of ₹ 1,000 each to be allowed to both Ruma and Neha.
3. Interest on drawings to be charged @ 18% per annum.

Ruma had withdrawn ₹ 12,000 during the year. As per the deed, the interest on her drawings, amounting to ₹ 1,080 to be charged from her.

During the year ending 31^st March, 2022, the firm earned a net profit of ₹ 2,04,000 before charging a manager’s commission of ₹ 20,400 and interest on a bank loan of ₹ 4,000.

You are required to:

1. Give the journal entry to close Ruma’s Drawings Account.
2. Prepare a Profit and Loss Appropriation Account for the year ending 31^st March, 2022.

Answer 1

Journal Entry
Particulars	L.F.	Dr. (₹)	Cr. (₹)
Ruma’s Current A/c   ...Dr.		12,000	-
To Ruma’s Drawings A/c		-	12,000
(Closing entry for Ruma’s Drawings A/c)

 

Dr.	Profit and Loss Appropriation Account For the year ended 31st March, 2022				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Interest on Capital:		77,500	By Profit and Loss A/c	2,04,000	1,79,600
Ruma’s current A/c	44,000		Less: Manager’s Commission	(20,400)
Neha’s current A/c	33,500		Less: Interest on bank loan	(4,000)
To Partners Salary:		24,000	By Interest on Drawings:		1,080
Ruma’s current A/c	12,000		Ruma’s current A/c
Neha’s current A/c	12,000
To Profit transferred to:		79,180
Ruma’s current A/c	47,508
Neha’s current A/c	31,672
		1,80,680			1,80,680

Working Note:

Calculation of Interest on Capital:

Ruma’s capital on 1^st April 2021 = ₹ 4,00,000

Ruma’s New Capital on 1^st October 2021 = `8,00,000 xx 3/5`

= ₹ 4,80,000

Interest on Ruma’s Capital:

For period from (1^st April to 1^st October 2021) -

= `4,00,000 xx 10/100 xx 6/12`

= ₹ 20,000

For period from (1^st October 2021 to 31^st March 2022) -

= `4,80,000 xx 10/100 xx 6/12`

= ₹ 24,000

Total interest on Ruma’s capital = 20,000 + 24,000

= ₹ 44,000

Neha’s capital on 1^st April 2021 = ₹ 3,50,000

Neha’s new capital as on 1^st October 2021 = `8,00,000 xx 2/5`

= ₹ 3,20,000

Interest on Neha’s Capital:

For period from (1^st April to 1^st October 2021) -

= `3,50,000 xx 10/100 xx 6/12`

= ₹ 17,500

For period from (1^st October 2021 to 31^st March 2022) -

= `3,20,000 xx 10/100 xx 6/12`

= ₹ 16,000

Total interest on Neha’s Capital = 17,500 + 16,000

= ₹ 33,500