Question

On 1-4-2013 Jay and Vijay, entered into partnership for supplying laboratory equipments to government schools situated in remote and backward areas. They contributed capitals of 80,000 and 50,000 respectively and agreed to share the profits in the ratio of 3 : 2. The partnership deed provided that interest on capital shall be allowed at 9% per annum. During the year the firm earned a profit of 7,800. Showing your calculations clearly, prepare ‘Profit and Loss Appropriation Account’ of Jay and Vijay for the year ended 31-3-2014. 

Answer 1

 Interest on Jay Capital = (80,000  x 9/100) = Rs.7,200

Interest on Vijay’s Capital = (50,000 x 9/100) = Rs. 4,500

Since interest on capital is an appropriation of profit, it cannot exceed profit. Total interest on Capital 

= Rs.7,200 + 4,500 = Rs. 11,700

Jay will get = (7,200/11,700) x 7800

= Rs. 4,800

Vijay will get = (4,500/11,700) x 7800

= Rs.3,000

Profit & Loss Appropriation A/c For the year ending March 31, 2014