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A, B and C were partners in a firm having capitals of Rs.50,000; Rs.50,000 and Rs.1,00,000 respectively. Their Current Account balances were A: Rs.10,000; B: 5,000 and C: 2,000 (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.12,000 p.a. 

The profits were to be divided as: 

a. The first Rs.20,000 in proportion to their capitals. 

b. Next Rs.30,000 in the ratio of 5 : 3 : 2. 

c. Remaining profits to be shared equally. 

The firm made a profit of Rs.1,72,000 before charging any of the above items. Prepare Profit and Loss Appropriation Account and pass necessary Journal entry for the appropriation of profits.

3 Answers

+1 vote
by (17.0k points)
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Best answer

Profit and Loss Appropriation Account

Dr.

Cr.

Particulars

Amount

(₹)

Particulars

Amount

(₹)

Interest on Capital:

Profit and Loss A/c (Net Profit)

1,72,000

A

5,000

B

5,000

C

10,000

20,000

Salary to C

12,000

Profit transferred to:

A’s Current A/c

50,000

B’s Current A/c

44,000

C’s Current A/c

46,000

1,40,000

1,72,000

1,72,000

Journal Entries

Date

Particulars

L.F.

Debit

Amount

(₹)

Credit

Amount

(₹)

Interest on Capital A/c

Dr.

20,000

To A’s Current A/c

5,000

To B’s Current A/c

5,000

To C’s Current A/c

10,000

(Interest on partner's capital allowed to partners)

Salary A/c

Dr.

12,000

To C’s Current A/c

12,000

(Salary allowed to C)

Profit and Loss Appropriation A/c

Dr.

1,40,000

To A’s Current A/c

50,000

To B’s Current A/c

44,000

To C’s Current A/c

46,000

(Profit available for distribution transferred to partner's current accounts)

+1 vote
by (106k points)

Working notes:

1. calculation of interest on capital

Therefore,

Total profit share of A = 5,000+15,000+30,000= Rs. 50,000

Total profit share of  B = 5,000+9,000+30,000 = Rs.44,0000

Total profit share of c= 10,000+6,000+30,000 = Rs. 46,0000

+1 vote
by (17.0k points)

Working Notes:

1. Calculation of Interest on Capital

Interest on A's Capital = 50,000 x \(\frac{10}{100}\) = Rs 5,000

Interest on B's Capital = 50,000 x \(\frac{10}{100}\) = Rs 5,000

Interest on C's Capital = 1,00,000 x \(\frac{10}{100}\) = Rs 10,000

2. Calculation of Profit Share of each Partner

Profits available for Distribution = 1,72,000 − 20,000 − 12,000

= Rs 1,40,000

(i) Distribution of first Rs 20,000 in the Capital Ratio i.e. 1:1:2

A's Profit Share = 20,000 x \(\frac 14\) = Rs 5,000

B's Profit Share = 20,000 x \(\frac 14\) = Rs 5,000

C's Profit Share = 20,000 x \(\frac 24\) = Rs 10,000

(ii) Distribution of Next Rs 30,000 in the ratio of 5:3:2

A's Profit Share = 30,000 x \(\frac 5{10}\) = Rs 15,000

B's Profit Share = 30,000 x \(\frac 3{10}\) = Rs 9,000

C's Profit Share = 30,000 x \(\frac 2{10}\) = Rs 6,000

(iii) Remaining Profit available for distribution = Rs 1,40,000 − 20,000 − 30,000 = Rs 90,000

This profit of Rs 90,000 is to be shared equally by the partners.

A, B and C each will get = 90,000 x \(\frac 13\) = Rs 30,000

Therefore,

Total Profit Share of A = 5,000 + 15,000 + 30,000 = Rs 50,000

Total Profit Share of B = 5,000 + 9,000 + 30,000 = Rs 44,000

Total Profit Share of C = 10,000 + 6,000 + 30,000 = Rs 46,000

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