Question

A and B are partners. A’s Capital is Rs.1,00,000 and B’s Capital is Rs.60,000. Interest on capital is payable @ 6% p.a. B is entitled to a salary of Rs.3,000 per month. Profit for the current year before interest and salary to B is Rs.80,000. Prepare Profit and Loss Appropriation Account.

Answer 1

Profit and Loss Appropriation Account

Dr.				Cr.
Particulars			Amount Rs	Particulars	Amount Rs
Interest on Capital:				Profit and Loss A/c (Net Profit)	80,000
A		6,000
B		3,600	9,600
Salary to B (Rs 3,000 × 12)			36,000
Profit transferred to:
A’s Capital A/c	17,200
B’s Capital A/c	17,200		34,400
			80,000		80,000

Working Notes:

1. Calculation of Interest on Capital

Interest on A's Capital = 1,00,000 x \(\frac 6{100} \) = Rs 6,000

Interest on B's Capital = 60,000 x \(\frac 6{100} \) = Rs 3,600

2. Calculation of Profit Share of each Partner

Divisible Profit = 80,000 – 9,600 – 36,000 = 34,400

Profit Share of A and B each = 34,400 x \(\frac 12\) = Rs 17,200

Answer 2

Working notes:

Wn 1: Calculation of interest on capital