lata and mamta are partners with capitals of Rs 300000 and Rs 200000 respectively sharing profits as lata 70% and mamta 30% during the year ended 31 march 2005 they earned a profit of Rs 226440 before allowing interest on partner's loan.  the terms of partnership are as follows:

1.  interest on capital is to be allowed @ 7% p.a

2.   lata to get a salary of Rs 2500 per month.

3.    interest on mamta's loan account of Rs 80000 for the whole yr.

4.    interest on drawings of partner's at 8% per annum . drawings being lata Rs 36000 and mamta Rs 48000.

5.    1/10 of the distributable profit should be transferred to general reserve. prepare the profit and loss appropriation account.

rply me the solution to this ques. in detail.


Dear student




Profit and Loss Appropriation Account

Dr.

 

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Interest on Capital at 7% to:

 

Profit and Loss A/c (after charging Interest on Mamta’s Loan) (2,26,440 – 4,800*)

2,21,640

Lata (3,00,000 × 7%)

21,000

 

Interest on Drawings @ 8%:

 

Mamta (2,00,000 × 7%)

14,000

35,000

Lata (36,000 × 8% × ½)

1,440

 

 

 

Mamta (48,000 × 8% × ½)

1,920

3,360

Salary to Lata (2,500 × 12)

30,000

 

 

General Reserve (1,60,000** × 10%)  

16,000

 

 

Profit transferred to:

 

 

 

Lata (70% of 1,44,000)

1,00,800

 

 

 

Mamta (30% of 1,44,000)

43,200

1,44,000

 

 

 

2,25,000

 

2,25,000

 

 

 

 

             

* Interest on Mamta’s Loan is provided @ 6% as there is no rate of interest on Partner’s Loan is given in the agreement.

  Interest on Mamta’s Loan = 80,000 × 6% = 4,800

** Distributable Profit is calculated as:

Net Profit

2,21,640

Add: Interest on Drawings

3,360

Less: Interest on Capital

(35,000)

Salary

(30,000)

Distributable Profit

1,60,000

 

 



Regards

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