Question

A and B are partners sharing profits and losses in the ratio of 3 : 1. On 1st April, 2017, their capitals were: A ₹ 50,000 and B ₹ 30,000. During the year ended 31st March, 2018 they earned a net profit of ₹ 50,000. The terms of partnership are:
(a) Interest on capital is to allowed @ 6% p.a.
(b) A will get a commission @ 2% on turnover.
(c) B will get a salary of ₹ 500 per month.
(d) B will get commission of 5% on profits after deduction of all expenses including such commission.
Partners drawings for the year were: A ₹ 8,000 and B ₹ 6,000. Turnover for the year was ₹ 3,00,000. After considering the above facts, you are required to prepare Profit and Loss Appropriation Account and Partners Capital Accounts.

Answer 1

Explanation:

Working Notes:

1. Calculation of Capital on Interest

Interest on A's Capital = $50,000\times \frac{6}{100} = 3,000$

Interest on B's Capital = $30,000\times \frac{6}{100} = 1,800$

2. Calculation of Commission

Commission to A = 2% on turnover

= $\frac{2}{100} \times 30,000= 6,000$

Commission to B =  5% on profit after all expense  (including commission)

profit for all commission

= Rs 50,000 - Rs 4,800 - Rs 6,000

=  Rs 33,200

Commission to B = $= Profit after all Expenses \times \frac{\text { Rate }}{100+\text { Rate }}$

$=33,200 \times \frac{5}{105}=1,581(\mathrm{App.})$

3. Calculation of Share of Profit of each Partner

Profit available for Distribution

$=\mathrm{Rs} .50,000-\mathrm{Rs} .4,800-\mathrm{Rs} .6,000-\mathrm{Rs} .7,581$

$=\mathrm{Rs} .31,619$

$Profit sharing ratio =3: 1 A's Profit Share =31,619 \times \frac{3}{4}=23,714$

$B's Profit Share =31,619 \times \frac{1}{4}=7,905$