Question

A and B are partners sharing profits in the ratio of 3 : 2 with capitals of ₹ 50,000 and ₹ 30,000 respectively. Interest on cpital is agreed @ 6% p.a. B is to be allowed an annual salary of ₹ 2,500. During the year profit prior to interest on capital but after charging B’s salary amounted to ₹ 12,500. A provision of 5% of the profits if to be made in respect of Manager’s Commission.

Answer 1

Explanation:

Working Notes:

1. Calculation of Manager's Commission

Manager's Commission $=5 \%$ on Net Profit (before Salary)

Profit before Salary = Profit after Salary + Salary = $=\mathrm{Rs} .12,500+\mathrm{Rs} .2,500=\mathrm{Rs} .15,000$

∴ Manager's Commission $=15,000 \times \frac{5}{100}=750$

2. Calculation of Interest on Capital

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

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

3. Calculation of share of profit of each Partner

Profit available for distribution $=\mathrm{Rs} .12,500-\mathrm{Rs} .750-\mathrm{Rs} .3,000-\mathrm{Rs} .1,800=\mathrm{Rs} .6,950$

Profit sharing ratio 3: 2

A's Profit Share $=6,950 \times \frac{3}{5}=4,170$

B's Profit Share $=6,950 \times \frac{2}{5}=2,780$