A, B and C are part neers in a from sharing profit and losses 8:7:3. Their capital where ₹ 60,000 45,000 and 35,000 respectively. Band C get annual Salary 6,000 and 5,000 respecticely. Interest on Capital is allowed @ 10% p.a. The net profit during the year were ₹ 150000. prepare profit and loss appropriation.
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Answers
Given data:
- A, B and C are partners in a firm sharing profits and losses in the ratio 8:7:3.
- Their capitals are Rs 60,000, Rs 45,000 and Rs 35,000 respectively.
- B and C are entitled to an annual salary of Rs 6,000 and Rs 5,000 respectively.
- Interest on capital is to be charged at 10% p.a.
- The profit for the year was Rs 1,50,000.
Objective: To prepare a Profit & Loss Appropriation A/c.
Answer:
Calculation of interests on capitals:
Interest on capital = (Capital × Rate) ÷ 100
For A:
- Interest on capital = (Rs 60,000 × 10) ÷ 100 = Rs 6,000
For B:
- Interest on capital = (Rs 45,000 × 10) ÷ 100 = Rs 4,500
For C:
- Interest on capital = (Rs 35,000 × 10) ÷ 100 = Rs 3,500
Interests on capitals will be recorded on the debit side of the appropriation account.
Salaries will be recorded on the debit side of the appropriation 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 1,50,000
Debit = Rs 25,000
Balancing figure = Rs 1,50,000 - Rs 25,000 = Rs 1,25,000 [Dr.]
Calculation of profit distribution:
Since they share their profits and losses in the ratio 8:7:3, it will be distributed accordingly.
For A:
- Profit share = Rs 1,25,000 × 8/18 = Rs 55,556 [approx.]
For B:
- Profit share = Rs 1,25,000 × 7/18 = Rs 48,611 [approx.]
For C:
- Profit share = Rs 1,25,000 × 3/18 = Rs 20,833 [approx.]
The Profit & Loss Appropriation account has been attached below.
