Question

ACCOUNTING FOR PARTI
2.164
HOTS
74. A and B contribute 31,00,000 and 360,000 respectively in a partnership firm
by way of capital on which they agree to allow interest @ 8% p.a. Their profit
or loss sharing ratio is 3:2. The profit at the end of the year was 2,800 before
allowing interest on capital. If there is a clear agreement that interest on
capital will be paid even in case of loss, then B's share will be:
(A) Profit 6,000
(B) Profit 4,000
(C) Loss 6,000
(D) Loss 34,000
be
THIS 000.00

Answer 1

The answer is (D) Loss Rs 4,000.

Explanation:

Calculation of interests on capitals:

Interest on capital = (Capital × Rate) ÷ 100

For A:

• Interest on capital = (Rs 1,00,000 × 8) ÷ 100 = Rs 8,000

For B:

• Interest on capital = (Rs 60,000 × 8) ÷ 100 = Rs 4,800

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

The profit for the year, i.e., Rs 2,800, will be recorded on the credit side.

Calculation of profit/loss:

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

Credit = Rs 2,800

Debit = Rs 8,000 + Rs 4,800 = Rs 12,800

Balancing figure = Rs 12,800 - Rs 2,800 = Rs 10,000 [Cr.]

Calculation of loss distribution:

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

For A:

• Loss share = Rs 10,000 × 3/5 = Rs 6,000

For B:

• Loss share = Rs 10,000 × 2/5 = Rs 4,000

Therefore, B's share is a loss of Rs 4,000.

A Profit & Loss Appropriation Account for the same has been created and attached below.