Question

A,B, and C are partners in a firm. According to the Partnership Deed, the partners are entitled to draw Rs.7,000 per month. On the 1st day of every month A,B and C drew Rs.8,000;Rs.5,000 and Rs.4,000 respectively. Interest on capitals and interest on drawings are fixed @ 8% and 10% respectively. Profit for the year ended 31st March, 2018 was Rs.7,55,000 out of which Rs.300,000 are to be transferred to General Reserve. B and C are entitled to receive salary of Rs.30,000 and Rs.45,000 p.a. respectively and A is entitled to receive commission @ 10% on net distributable profits after charging such commission. On 1st April, 2017, the balances of their Capital Accounts were Rs.5,00,000;Rs.4,00,000 and Rs.3,50,000 respectively. Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2018 and Capital Accounts of Partners in the books of the firm.​

Answer 1

PROFIT AND LOSS APPROPRIATION ACCOUNT

Particulars   Rs  Particulars  Rs

To, General Reserve A/c  200000  By Profit and loss A/c (Net Profit)  755000

To, Interest on Capital A/c

A ( 500000*8%)                 40000

B ( 400000*8%)                 32000

C ( 350000*8%)                 28000

 

100000  By Interest on Drawing A/cs (WN 1)

A (84000*10%*6.5/12)            4,550

B (72000*10%*6.5/12)            3,900

C (60000*105*6.5/12)            3,250  

11,700  

To, Partners Salary A/c  

B                                          30000

C                                          45000  

75000    

To, A's Commission A/c (WN 3) 35,609    

To, Profit transferred to:

A's Capital A/c                     1,18,697

B's Capital A/c                     1,18,697

C's Capital A/c                     1,18,697  

3,56,091    

  7,66,700    7,66,700

 

                                                                 PARTNERS CAPITAL ACCOUNT

Particulars  A  B  C  Particulars  A  B  C

To, Drawings A/c  84,000 72000  60000  By, Balance b/d  500000  400000   350000

To, Interest on Drawings A/c 4,550   3,900 3,250  By, Interest on capital A/c  40000  32000 28000  

To, Balance c/d  6,05,756 4,74,797 4,78,447  By, Partners Salary A/c _   30000 45,000  

        By, A's Commission A/c 35,609  _  _

        By, Profit and loss Appropriation A/c  118697 118697   118697

Total 6,94,306 5,50,697 5,41,697  Total 6,94,306 5,50,697 5,41,697

Answer 2

Answer:

As per section 80 of the Companies Act 1956, company can redeem preference shares only out of fresh issue or profits that are available for distribution as dividends. In case, there is premium to be paid on redemption it should be paid out of profit available for paying dividends or out of securities premium account.

Amount to be paid on redemption = 2,00,000 + 20,000 ( 10% of 2,00,000)

= 2,20,000

Amount of fresh issue = Amount to be paid on redemption - (Free reserves + securities premium reserve)

= 2,20,000 - ( 30,000 + 20,000 + 8,000 + 50,000)

= Rs-1,12,000.

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