Question

The partnership agreement between Maneesh and Girish provides that: 

(i) Profits will be shared equally; 

(ii) Maneesh will be allowed a salary of Rs. 400 p.m; 

(iii) Girish who manages the sales department will be allowed a commission equal to 10% of the net profits, after allowing Maneesh’s salary; 

(iv) 7% interest will be allowed on partner’s fixed capital; 

(v) 5% interest will be charged on partner’s annual drawings; 

(vi) The fixed capitals of Maneesh and Girish are Rs. 1,00,000 and Rs. 80,000, respectively. Their annual drawings were Rs. 16,000 and 14,000, respectively. The net profit for the year ending March 31, 2006 amounted to Rs. 40,000; Prepare firm’s Profit and Loss Appropriation Account.

Answer 1

Note: In case rate of interest on drawings would have been @ par then it was to be calculated for average 6 months.

As capitals are fixed,  hence profit is transfered to current account