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Question
X, Y and Z are in partnership sharing profits and losses in 2 : 2 : 1 after allowing X, a salary of ₹ 4,00,000 p.a. On 1st April, 2025, their account balances were:
| Capital Accounts | Current Accounts | |
| X | 10,00,000 | 2,00,000 (Cr.) |
| Y | 8,00,000 | 1,00,000 (Cr.) |
| Z | 7,50,000 | 50,000 (Dr.) |
From 1st October, 2025, X decided to retire from the firm's full active work in the partnership. It is accordingly agreed that from 1st October, 2025:
- X would transfer ₹ 2,00,000 from his Capital Account to a Loan Account on which interest would be paid @ 15% p.a.
- X will not be entitled to any salary, but Y and Z are to receive a salary of ₹ 2,50,000 p.a. and ₹ 1,50,000 p.a. respectively. The net profit for the year ended 31st March, 2026 was ₹ 10,20,000.
No entry has been made in the books in regard to the following:
- On 1st October, 2025, Z brought his private car into the firm at a valuation of ₹ 5,00,000. The car is to be depreciated over 4 years on the straight line basis. It is assumed that after 4 years it will have a residual value of ₹ 1,00,000.
- 1/5th of the general expenses of ₹ 1,20,000, which have been debited to the Profit & Loss Account relate to the next accounting period.
Partners are entitled to interest on capital @ 12% p.a. and charged interest on drawings @ 9% p.a.
X withdrew ₹ 10,000 at the beginning of every month for first 6 months. Y withdrew ₹ 12,000 p.m. at the end of each month for first 3 months and then increased it to ₹ 15,000 per month.
You are required to prepare Profit & Loss Appropriation Account for the year ended 31st March, 2026. Also show their Capital and Current A/cs.
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Solution
| Dr. | PROFIT & LOSS APPROPRIATION ACCOUNT for the year ended 31st March, 2026 |
Cr. | |||
|---|---|---|---|---|---|
| Particulars | Amount (₹) | Amount (₹) | Particulars | Amount (₹) | Amount (₹) |
| To Salary to Partners A/c | By Profit & Loss A/c (1) | ||||
| X | 2,00,000 | (Net Profit) | 9,79,000 | ||
| Y | 1,25,000 | By Interest on Drawings A/c (3) | |||
| Z | 75,000 | 4,00,000 | X | 4,275 | |
| To Interest on Capital A/c (2) | 3,24,000 | Y | 6,750 | 11,025 | |
| X | 1,08,000 | ||||
| Y | 96,000 | ||||
| Z | 1,20,000 | 3,24,000 | |||
| To Capital Accounts of Partners: | |||||
| X | 1,06,410 | ||||
| Y | 1,06,410 | ||||
| Z | 53,205 | 2,66,025 | |||
| 9,90,025 | 9,90,025 | ||||
| Dr. | Partners' Capital Accounts | Cr. | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Date | Particulars | X (₹) | Y (₹) | Z (₹) | Date | Particulars | X (₹) | Y (₹) | Z (₹) |
| 2025 | 2025 | ||||||||
| Oct. 1 | To X's Loan A/c | 2,00,000 | - | - | April 1 | By Balance b/d | 10,000,000 | 8,00,000 | 7,50,000 |
| 2026 | Oct. 1 | By Motor Car A/c | - | - | 5,00,000 | ||||
| March 31 | To Balance c/d | 8,00,000 | 8,00,000 | 12,50,000 | |||||
| 10,00,000 | 8,00,000 | 12,50,000 | 10,00,000 | 8,00,000 | 12,50,000 | ||||
| Dr. | Partners' Current Accounts | Cr. | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Date | Particulars | X (₹) | Y (₹) | Z (₹) | Date | Particulars | X (₹) | Y (₹) | Z (₹) |
| 2025 | 2025 | ||||||||
| April 1 | To Balance b/d | - | - | 50,000 | April 1 | By Balance b/d | 2,00,000 | 1,00,000 | - |
| 2026 | 2026 | ||||||||
| March 31 | To Drawings A/c | 60,000 | 1,71,000 | - | March 31 | By Partners' Salaries A/c | 2,00,000 | 1,25,000 | 75,000 |
| " | To Interest on Drawings A/c | 4,275 | 6,750 | - | " | By Interest on Capital A/c | 1,08,000 | 96,000 | 1,20,000 |
| " | By Profit & Loss Appr. A/c (Share of Profit) | 1,06,410 | 1,06,410 | 53,205 | |||||
| " | To Balance c/d | 5,50,135 | 2,49,660 | 1,98,205 | |||||
| 6,14,410 | 4,27,410 | 2,48,205 | 6,14,410 | 4,27,410 | 2,48,205 | ||||
Working Notes:
(1) Ascertainment of Correct Net Profit
| Particulars | ₹ |
|---|---|
| Net Profit (as given) | 10,20,000 |
| Less: Depreciation of Car\[(\frac{5,00,000 - 1,00,000}{4} \times \frac{6}{12})\] = 50,000 |
|
| Interest on $X$'s Loan A/c ($₹2,00,000 \times \frac{15}{100} \times \frac{6}{12}$) = 15,000 | 65,000 |
| 9,55,000 | |
| Add: Unexpired General Expenses ($\frac{1}{5} \times 1,20,000$) | 24,000 |
| 9,79,000 |
| Particulars | ₹ | ₹ |
|---|---|---|
| $X : \quad ₹10,00,000 \times \frac{12}{100} \times \frac{6}{12}$ | 60,000 | |
| $\quad\quad\ \ ₹8,00,000 \times \frac{12}{100} \times \frac{6}{12}$ | 48,000 | 1,08,000 |
| $Y : \quad ₹8,00,000 \times \frac{12}{100}$ | 96,000 | |
| $Z : \quad ₹7,50,000 \times \frac{12}{100}$ | 90,000 | |
| $\quad\quad\ \ ₹5,00,000 \times \frac{12}{100} \times \frac{6}{12}$ | 30,000 | 1,20,000 |
| Total | 3,24,000 |
(3) Interest on Drawings:
For X : Average Period
For First 6 months $= \frac{6 + 1}{2} = 3.5\text{ months}$
For Next 6 months $= 6.0\text{ months}$
Total Average Period $= {9.5\text{ months}}$
For First 3 months $= \frac{2 + 0}{2} = 1\text{ month}$
For Next 9 months $= 9\text{ months}$
Total Average Period $= {10\text{ months}}$
$\frac{8 + 0}{2} = 4\text{ months}$
