A , B , C were partners in a firm having capitals of rs. 50000, rs. 50000 and rs.100000. Thier current account balances were A : Rs.10000 , B : Rs.5000 and C : Rs.2000 (Dr.) . According to the partnership deed the partners were entitled to an interest on capital @ 10% p.a. C being the working partner was also entitled to a salary of Rs.12000p.a. The profits were to be divided as :

(a). The first Rs.20000 in proportion to their capitals.

(b). Next Rs. 30000 in the ratio of 5:3:2

(c). Remaining profits to be shared equally.

The firm made a profit of Rs.172000 before charging any of the above items . Prepare the profit and loss appropriation account and pass the necessary journal entries for the appropriation of profits.

Profit and Loss Appropriation Account

For the year ended ……..

Dr.

 

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Interest on Capital:

 

Profit and Loss A/c

 

A

5,000

 

(Net Profit)

1,72,000

B

5,000

 

 

 

C

10,000

20,000

 

 

Salary to C

12,000

 

 

Profit transferred to:

 

 

 

A’s Capital A/c

50,000

 

 

 

B’s Capital A/c

44,000

 

 

 

C’s Capital A/c

46,000

1,40,000

 

 

 

1,72,000

 

1,72,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Working Notes:

Calculation of Interest on Capital

 

Calculation of distribution of profits

Total profits = 1,72,000 – (20,000 + 12,000) = Rs 1,40,000

 

(1) First Rs 20,000 to be distributed in proportion to their capitals

 

Therefore,

 

(2) Next, Rs 30,000 is to be shared in the ratio of 5 : 3 : 2.

Therefore,

 

(3) Remaining profits of Rs 90,000 (i.e.1,40,000 – 20,000 – 30,000) is to be shared equally Therefore,

 

 

Journal

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

Profit and Loss Appropriation A/c

Dr.

 

20,000

 

 

To A’s Capital A/c

 

 

5,000

 

To B’s Capital A/c

 

 

5,000

 

To C’s Capital A/c

 

 

10,000

 

(Interest on capital paid to A, B, C)

 

 

 

 

 

 

 

 

 

Profit and Loss Appropriation A/c

Dr.

 

12,000

 

 

To C’s Capital A/c

 

 

12,000

 

(Salary paid to C)

 

 

 

 

 

 

 

 

 

Profit and Loss Appropriation A/c

Dr.

 

1,40,000

 

 

To A’s Capital A/c

 

 

50,000

 

To B’s Capital A/c

 

 

44,000

 

To C’s Capital A/c

 

 

46,000

 

(Profit transferred to A, B and C)

 

 

 

 

 

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