Question

Q 1 Ram and Rahim start business with capital of ` 50,000 and 130,000 on 1 st January, 2016.

Rahim is entitled to a salary of ` 400per month. Interest is allowed on capitals and is charged on

drawings at 6% per annum. Profits are to be distributed equally after the above noted adjustments.

During the year, Ram withdrew 18,000 and Rahim withdrew 110,000. The profit for the year before

allowing for the terms of the Partnership Deed came to 130,000. Assuming the capitals to be

fixed, prepare the Profit and Loss Appropriation Account​

Answer 1

Answer: To prepare the Profit and Loss Appropriation Account, we need to start with the profit for the year before allowing for the terms of the Partnership Deed, which is 130,000.

First, we need to calculate the interest on the capital invested by each partner. For Ram, the capital is 50,000 and the interest rate is 6% per annum, so the interest on his capital is:

Interest on capital = (50,000 x 6%) / 12

Which simplifies to:

Interest on capital = 3,000

For Rahim, the capital is 130,000 and the interest rate is also 6%, so the interest on his capital is:

Interest on capital = (130,000 x 6%) / 12

Which simplifies to:

Interest on capital = 7,500

Next, we need to calculate the interest on the drawings made by each partner. For Ram, the drawings are 18,000 and the interest rate is 6% per annum, so the interest on his drawings is:

Interest on drawings = (18,000 x 6%) / 12

Which simplifies to:

Interest on drawings = 900

For Rahim, the drawings are 110,000 and the interest rate is also 6%, so the interest on his drawings is:

Interest on drawings = (110,000 x 6%) / 12

Which simplifies to:

Interest on drawings = 5,500

Now, we can subtract

Explanation: