10. Ram and Shyam started a partnership. Ram who was rich contributed ₹1,00,000 but
Shyam, who had experience and ability, contributed only ₹10,000 as their capitals.
Besides this, Ram advanced a loan of 50,000 to the Firm in the middle of the year. In the
first year they earned a profit of 61,500. Ram insisted that interest on capital and loan be
provided @ 18% per annum before the distribution of profit, while Shyam demanded a
salary of 2,000 per month. Prepare profit & Loss Appropriation a/c.
Answers
Answer:
Profit before Interest
= 2,50.000
Less:Interest on Capital = (60,000)
Profit after interest
Explanation:
the partners capital are fixed,we have to pass entry for additional 1% through current Account. The following entries should be passes: Profit and Loss Appropriation A/c Dr. 6000
To Interest on Capital A/C 6000
(Interest of additional 1% debited to P&L Appropriation Account)
Interest On capital Account Dr. 6000
To Ram's Current Alc
To Shyam's Current Alc
To Mohan's Current Alc
3000
1000
2000
(Being interest credited to Current account of partners)
Profit and Loss Appropriation A/c Dr (Notes) 1,90,000
To Ram's Current Alc
76,000 To Shyam's Current Alc
38,000
To Mohan's Current Alc 76 000
(Being interest credited to Current account of
partners)
Profit and Loss Appropriation A/c Dr (Notes)
1,90,000
To Ram's Current Alc 76,000
To Shyam's Current Alc 38,000
To Mohan's Current Alc 76,000
(Being profits distributed to partners)
Notes: Profit before Interest
= 2,50.000
Less:Interest on Capital = (60,000)
Profit after interest = 1,90,000