Question

Sajal and Kajal are partners sharing profits and losses in the ratio of 2 : 1. On 1st April, 2017 their Capitals were: Sajal Rs. 50,000 and Kajal Rs. 40,000. Prepare Profit and Loss Appropriation Account and the Partners Capital Accounts at the end of the year after considering the following items: 

(a) Interest on Capital is to be allowed @ 5% p.a. (b) Interest on the loan advanced by Kajal for the whole year, the amount of loan being Rs. 30,000. 

(c) Interest on partners drawings @ 6% p.a. Drawings: Sajal Rs. 10,000 and Kajal Rs. 8,000. 

(d) 10% of the divisible profit is to be transferred to Reserve. The net profit for the year ended 31st March, 2018 Rs. 68,460. 

Note: Net profit means net profit after debit of interest on loan by the partner.

Answer 1

Profit and Loss Account
for the year ended 31st March, 2018

Dr.			Cr.
Particulars	Amount Rs	Particulars	Amount Rs
Interest on Kajal’s loan@ 6% p.a.	1,800	Profit	70,260
Profit transferred to P/L Appropriation A/c	68,460
	70,260		70,260

Profit and Loss Appropriation Account
for the year ended 31st March, 2018

Dr.						Cr.
Particulars			Amount Rs	Particulars		Amount Rs
Interest on Capital A/c:				Profit and Loss A/c		68,460
Sajal		2,500
Kajal		2,000	4,500	Interest on Drawings A/c:
				Sajal	300
Reserve			6,450	Kajal	240	540
Profit transferred to:
Sajal’s Capital A/c	38,700
Kajal’s Capital A/c	19,350		58,050
			69,000			69,000

Partners’ Capital Accounts

Dr.						Cr.
Particulars	Sajal	Kajal		Particulars	Sajal	Kajal
Drawings A/c	10,000	8,000		Balance b/d	50,000	40,000
Interest on Drawings A/c	300	240		Interest on Capital A/c	2,500	2,000
				P&L Appropriation A/c	38,700	19,350
Balance c/d	80,900	53,110
	91,200	61,350			91,200	61,350

Working Notes:

1. Calculation of Interest on Capital

Interest on Sejal's Capital = 50,000 x \(\frac 5{100}\) = Rs 2,500

Interest on Kajal's Capital = 20,000 x \(\frac 5{100}\) = Rs 2,000

2. Calculation of Interest on Drawings

Interest on Sejal's Drawings = 10,000 x \(\frac 6{100} \times \frac 6{12}\) = Rs 300

Interest on Kajal's Drawings = 8,000 x \(\frac 6{100} \times \frac 6{12}\) = Rs 240

3. Calculation of Amount to be transferred to Reserve

Amount for Reserve = 10% of Divisible Profit

Divisible Profit = Profit + Interest on Drawings − Interest on Capital

= 68,460 + 540 − 4,500

= Rs 64,500

\(\therefore\) Amount for reserve = 64,500 x \(\frac {10}{100}\)

= Rs 6,450

4. Calculation of Profit Share of each Partner

Profit available for Distribution = 68,460 + 540 − 4,500 − 6,450 

= Rs 58,050

Profit sharing ratio = 2 : 1

Sejal's Profit Share = 58,050 x \(\frac 23\) = Rs 38,700

Kajal's Profit Share = 58,050 x \(\frac 13\) = Rs 19350

Answer 2

Working Note:

1. Calculation of Interest on capital

3. Calculation of amount to be transferred to reserve