Question

Ajay and Kajal are partners of a firm sharing
profits and losses in the ratio of 2:1. Their capital,
were Rs.90,000 and Rs.60,000. The profit during the
year were Rs. 45,000. According to partnership
deed, both partners are allowed salary, Rs. 700 per
month to Ajay and Rs. 500 per month to Kajal.
Interest allowed on capital @ 5%p.a. The drawings
during the year were Rs. 8,500 for Ajay and Rs.
6,500 for Kajal. Interest is to be charged @ 5% p.a.
on drawings.

Answer 1

Given data:

• Ajay and Kamal are partners in a firm sharing profits and losses in the ratio 2:1.
• Their capitals were Rs 90,000 and Rs 60,000 respectively.
• The firm earned a profit of Rs 45,000.
• Ajay gets a salary of Rs 700 per month and Kamal gets a salary of Rs 500 per month.
• Interest on capital is to be charged at 5% p.a.
• The drawings made during the year were Rs 8,500 by Ajay and Rs 6,500 by Kamal.
• Interest on drawings is to be charged at 5% p.a.

Objective: To prepare a Profit & Loss Appropriation A/c and Partners' Capital A/c.

Answer:

Calculation of interest on capitals:

Interest on capital = (Capital × Rate) ÷ 100

For Ajay:

• Interest on capital = (Rs 90,000 × 5) ÷ 100 = Rs 4,500

For Kamal:

• Interest on capital = (Rs 60,000 × 5) ÷ 100 = Rs 3,000

Interest on capital will be recorded on the debit side.

Calculation of annual salary:

Since the partners get a certain amount per month, the amount will need to be multiplied by 12.

For Ajay:

• Annual salary = Rs 700 × 12 = Rs 8,400

For Kamal:

• Annual salary = Rs 500 × 12 = Rs 6,000

Salaries will be recorded on the debit side.

Calculation of interest on drawings:

Interest on drawings = (Drawings × Rate) ÷ 100

For Ajay:

• Interest on drawings = (Rs 8,500 × 5) ÷ 100 = Rs 425

For Kamal:

• Interest on drawings = (Rs 6,500 × 5) ÷ 100 = Rs 325

Interest on drawings will be recorded on the credit side.

Calculation of profit/loss:

Once all the items have been entered, observe which side has a higher balance. If the balancing figure appears on the debit side, it is profit. Else, loss.

Credit side = Rs 45,750

Debit side = Rs 21,900

Balancing figure = Rs 23,850 [Dr.]

Calculation of profit distribution:

Since the partners share profits in the ratio 2:1, the profit must be distributed accordingly.

For Ajay:

• Profit share = Rs 23,850 × 2/3 = Rs 15,900

For Kamal:

• Profit share = Rs 23,850 × 1/3 = Rs 7,950

The Profit & Loss Appropriation A/c and Partners' Capital A/c have been attached below.