Amit and Sumit are partners with a capital of Rs.2,00,000 and Rs.1,50,000 respectively. The net profit for the year endings 31st March, 2020 amounted to Rs. 2,51,750 before considering the followings: (i) Amit advanced loan to the firm amounting 1,00,000 on 1st April, 2019. (ii) Interest on capital be allowed @5% p.a. (iii) Interest on drawing be allowed @ 5% p.a. Drawings of Amit was Rs. 40,000 and of Sumit was Rs.30,000. (iv) Amit was allowed commission @2% on sales which was 15,00,000 while Sumit was allowed commission @ 10% on distributable profit before charging his commission but after charging Amit's commission. (v) It was also decided to keep 10% of divisible profit to Reserve Account. Prepare Profit and Loss Appropriation Account.
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Profit and Loss Appropriation Account for the year ended 31st March, 2020
Particulars
Amount (Rs.)
Amount (Rs.)
Net Profit before adjustments
2,51,750
Add: Interest on Amit's Loan
5,000
Add: Interest on Capital
Amit (2,00,000 x 5%)
10,000
Sumit (1,50,000 x 5%)
7,500
Less: Interest on Drawings
Amit (40,000 x 5%)
2,000
Sumit (30,000 x 5%)
1,500
Distributable Profit
2,62,750
Less: Commission
Amit (15,00,000 x 2%)
30,000
Sumit (2,32,750 x 10%)
23,275
Divisible Profit
2,09,475
Less: Transfer to Reserve Account (10% of divisible profit)
20,948
Profit transferred to Balance Sheet
1,88,527
Note: The Profit and Loss Appropriation Account is prepared to distribute the profits between the partners as per the partnership agreement. The final amount of profit transferred to the Balance Sheet will be shown in the Balance Sheet of the partnership firm.
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