Question

2. Lalit and Mohit started a partnership business on 1st April 2018 with the capital contribution of 1,00,000 and
380,000. The partnership deed provided:
1) interest on capital @10% p.a.
ü) Lalit to get a salary of 1,000 pm. And Mohit a commission of $20,000 pa.
111) Profits are to be shared in the ratio of 3:2.
The profits for the year ended 31st March 2019 before making above appropriations were 1,10,000.
Prepare Profit and Loss Appropriation Account.

Answer 1

Given data:

• Lalit and Mohit are partners in a firm, sharing profits and losses in the ratio 3:2.
• Lalit's capital is Rs 1,00,000 and Mohit's capital is Rs 80,000.
• Interest on capital is to be charged at 10% p.a.
• Lalit is entitled to a salary of Rs 1,000 per month.
• Mohit is entitled to a commission of Rs 20,000 p.a.
• The profit for the year was Rs 1,10,000.

Objective: To prepare a Profit & Loss Appropriation A/c.

Answer:

Calculation of interests on capitals:

Interest on capital = (Capital × Rate) ÷ 100

For Lalit:

• Interest on capital = (Rs 1,00,000 × 10) ÷ 100 = Rs 10,000

For Mohit:

• Interest on capital = (Rs 80,000 × 10) ÷ 100 = Rs 8,000

Interests on capitals will be recorded on the debit side of the appropriation account.

Calculation of salary:

Since Lalit is to get a salary of Rs 1,000 per month, Rs 1,000 will need to be multiplied by 12 to get the annual salary.

Annual salary to Lalit = Rs 1,000 × 12 = Rs 12,000

Salaries will be recorded on the debit side of the account.

Commissions will be recorded on the debit side of the account.

Calculation of profit/loss:

To determine profit/loss, observe the debit and credit sides of the account. If the balancing figure appears on the debit side, it is profit. Else loss.

Credit = Rs 1,10,000

Debit = Rs 50,000

Balancing figure = Rs 1,10,000 - Rs 50,000 = Rs 60,000 [Dr.]

Calculation of profit distribution:

Since the partners share their profits and losses in the ratio 3:2, it must be distributed accordingly.

For Lalit:

• Profit share = Rs 60,000 × 3/5 = Rs 36,000

For Mohit:

• Profit share = Rs 60,000 × 2/5 = Rs 24,000

The Profit & Loss Appropriation A/c has been attached below.