Question

X and Y entered into partnership on 1st April, 2017 and contributed Rs. 2,00,000 and Rs. 1,50,000 respectively as their capitals. On 1st October, 2017, X provided Rs. 50,000 as loan to the firm. As per the provisions of the partnership Deed: (i) 20% of Profits before charging interest on Drawings but after making appropriations to be transferred to General Reserve. (ii) Interest on capital at 12% p.a. and Interest on Drawings @ 10% p.a. (iii) X to ger monthly salary of Rs. 5,000 and Y to get salary of Rs. 22,500 per quarter. (iv) X is entitled to a commission of 5% on sales. Sales for the year were Rs. 3,50,000. (v) Profit and Loss to be shared in the ratio of their capital contribution up to Rs. 1,75,000 and above Rs. 1,75,000 equally.The profit for the year ended 31st March, 2018 before providing for any interest was Rs. 4,61,000. The drawings of X and Y were Rs. 1,00,000 and Rs. 1,25,000 respectively. Pass the necessary Journal entries relating to appropriation our of profit and Loss Appropriation Account and the Partners Capital Accounts.

Answer 1

Profit and Loss Appropriation Account
for the year ended March 31, 2019

Dr.				Cr.
Particulars			Amount (₹)	Particulars		Amount (₹)
Interest on Capital A/c:				Profit and Loss A/c (4,61,000 – 1,500)		4,59,500
X		24,000		Interest on Drawings A/c:
Y		18,000	42,000	X	5,000
X’s Capital A/c (Commission) (3,50,000 × 5%)			17,500	Y	6,250	11,250
Salary:
X	60,000
Y	90,000		1,50,000
Reserve (WN 1)			50,000
Profit transferred to:
X’s Capital A/c	1,18,125
Y’s Capital A/c	93,125		2,11,250
			4,70,750			4,70,750

Partners’ Capital Accounts

Dr.				Cr.
Particulars		X (₹)	Y (₹)	Particulars	X (₹)	Y (₹)
Drawings A/c		1,00,000	1,25,000	Balance b/d	2,00,000	1,50,000
Interest on Drawings		5,000	6,250	Interest on Capital A/c	24,000	18,000
				Salary A/c	60,000	90,000
				Commission A/c	17,500
Balance c/d		3,14,625	2,19,875	P/L Appropriation A/c	1,18,125	93,125
		4,19,625	3,51,125		4,19,625	3,51,125

Working Notes:

1. Calculation of Reserve

Profit before charging Interest on Drawings but after making appropriations

= 4,59,000 - 42,000 - 17,500 - 60,000 - 90,000

= 2,50,000

Reserve = 2,50,000 x \(\frac{20}{100}\) = Rs 50,000

2. Division of Profit

Partners	Up to Rs 1,75,000	Rs 36,250 (Above Rs 1,75,000)	Total
X	1,00,000	18,125	1,18,125
Y	75,000	18,125	93,125

Answer 2

Working Notes:

1. Calculation of Reserve

Profit before charging Interest on Drawings but after making appropriations