Question

Amit, Binita and Charu are three partners. On 1st April, 2017, their Capitals stood as: Amit Rs. 1,00,000, Binita Rs. 2,00,000 and Charu Rs. 3,00,000. It was decided that: 

(a) they would receive interest on Capital @ 5% p.a. 

(b) Amit would get a salary of Rs. 10,000 per month. 

(c) Binita would receive commission @ 5% of net profit after deduction of commission, and 

(d) 10% of the net profit would be transferred to the General Reserve. Before the above items were taken into account, the profit for the year ended 31st March, 2018 was Rs. 5,00,000. Prepare Profit and Loss Appropriation Account and the Capital Accounts of the partners

Answer 1

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

Dr.				Cr.
Particulars			Amount Rs	Particulars	Amount Rs
Interest on Capital:				Profit and Loss A/c (Net Profit)	5,00,000
Amit		5,000
Binita		10,000
Charu		15,000	30,000
Salary to Amit (10,000 × 12)			1,20,000
Commission to Binita			23,810
General Reserve			50,000
Profit transferred to:
Amit’s Capital A/c	92,063
Binita’s Capital A/c	92,063
Charu’s Capital A/c	92,064		2,76,190
			33,360		33,360

Partners’ Capital Accounts

Working Notes:

1. Calculation of Interest on Capital

Interest on Amit = 1,00,000 x \(\frac 5{100}\) = 5,000

Interest on Binita = 2,00,000 x \(\frac 5{100}\) = 10,000

Interest on Charu = 3,00,000 x \(\frac 5{100}\) = 15,000

2. Calculation of Commission to Binita

Commission to Binita = 5% on Net Profits after Commission

Commission to Binita = Net Profit x \(\frac{\text{Rate} }{100+\text{Rate}}\)

= 5,00,000 x \(\frac 5{105}\)

= Rs 23,810

3. Calculation of Amount to be transferred to General Reserve

Amount for General Reserve = 10% of Profit

= 5,00,000 x \(\frac {10}{100}\)

= Rs 50,000

4. Calculation of Profit Share of each Partner

Profit available for Distribution = 5,00,000 - 30,000 - 1,20,000 - 23,810 - 50,000

= Rs 2,76,190

Profit share of Amit, Binita and Charu each = 2,76,190 x \(\frac 13\) 

= Rs 92,063

Answer 2

Working Note:

1. Calculation of Interest on Capital