Question

Q35. Neelam and Nikhil are partners sharing profit in the ratio 3:1. On 31st March 2021, firm's net profit is Rs.1,25,000. The partnership deed provided interest on capital to Neelam and Nikhil Rs. 15,000 & Rs.10,000 respectively and Interest on drawings for the year amounted to Rs. 6000 from Neelam and Rs. 4000 from Nikhil. Neelam is also entitled to commission @10% on net divisible profits. Calculate profit to be transferred to Partners Capital Ald's. (A) Rs.1,00,000 (B) Rs.1,10,000 (C) Rs.1,07,000 (D) Rs.90,000​

Answer 1

Given:

• Neelam and Nikhil are partners in a firm, sharing profits and losses in the ratio 3:1.
• The profit for the year amounted to Rs 1,25,000.
• Interest on capital is to be provided at Rs 15,000 and Rs 10,000 respectively.
• Interest on drawings amounted to Rs 6,000 and Rs 4,000 respectively.
• Neelam is entitled to a commission of 10% on net divisible profits.

To find: The profit to be transferred to the partners' capital accounts.

Answer:

The profit for the year, i.e., Rs 1,25,000 is to be recorded on the credit side of the appropriation account.

The interests on capitals [Rs 15,000 and Rs 10,000] are to be recorded on the debit side of the appropriation account.

The interests on drawings [Rs 6,000 and Rs 4,000] are to be recorded on the credit side of the appropriation account.

Calculation of divisible profit:

Profit = Credit items - Debit items

• Credit items = Rs 1,25,000 + Rs 6,000 + Rs 4,000 = Rs 1,35,000
• Debit items = Rs 15,000 + Rs 10,000 = Rs 25,000

Profit = Rs 1,35,000 - Rs 25,000 = Rs 1,10,000

Calculation of commission:

Since nothing has been mentioned, it is assumed that the commission is given after charging it.

Commission = Divisible profit × {Rate ÷ (100 + Rate)}

Commission = Rs 1,10,000 × {10 ÷ (100 + 10)}

Commission = Rs 10,000

The commission [Rs 10,000] will be recorded on the debit side of the appropriation account.

Calculation of profit to be transferred to the capital accounts:

Profit = Credit items - Debit items

• Credit items = Rs 1,25,000 + Rs 6,000 + Rs 4,000 = Rs 1,35,000
• Debit items = Rs 15,000 + Rs 10,000 + Rs 10,000 = Rs 35,000

Profit = Rs 1,35,000 - Rs 35,000 = Rs 1,00,000

Therefore, the profit to be transferred to the partners' capital accounts is (A) Rs 1,00,000.