Question

Prem and Manoj are partners in a firm sharing profits in the ratio of 3 : 2. The Partnership Deed provided that Prem was to be paid salary of ₹ 2,500 per month and Manoj was to ger a commission of ₹ 10,000 per year. Interest on capital was to be allowed @ 5% p.a. and interest on drawings was to be charged @ 6% p.a. Interest on Prem’s drawings was ₹ 1,250 and on Manoj’s drawings was ₹ 425. Interest on Capitals of the partners were ₹ 10,000 and ₹ 7,500 respectively. The firm earned a profit of ₹ 90,575 for the year ended 31st March, 2018. Prepare Profit and Loss Appropriation Account of the firm.

Answer 1

Profit and Loss Appropriation account of the firm is calculated below.

Explanation:

Net Profit of the firm = Rs. 90,575

Interest on each (Prem and Manoj) of the drawings

$= 1,250 + 425 = 1,675$

Salary for Prem

$= Rs. 2,500 \times 12 = 30,000$

Manoj’s commission= Rs. 10,000

Interest on capital for Prem and Manoj is Rs. 10,000 and Rs. 7,500 respectively.

Total becomes Rs. 17,500.  

Now, we will calculate profit that is available for distribution

$= 90,575 + 1,675 - 30,000 - 10,000 - 17,500 = Rs. 34,750$

Profit is to be shared in the ratio of 3:2

Prem’s profit share

$= 34,500 \times \frac {3}{5} = Rs. 20,850$

Manoj’s profit share

$= 34,500 \times \frac {2}{5} = Rs. 13,900$