Question

Radha and Raman are partners in a firm sharing profits and losses in the ratio of 5:2. Capital contributed by them is Rs. 50,000 and Rs. 20,000 respectively. Radha was given salary of Rs. 10,000 and Raman Rs. 7,000 per annum. Radha advanced loan of Rs. 20,000 to firm without any agreement to rate of interest in deed while in deed rate of interest on capital was mentioned as 6% p.a. Profits for the year are Rs. 29,400. Prepare Profit and Loss Appropriation Account for the year ending 31st March 2015.

Answer 1

Given data:

• Radha and Raman are partners in a firm sharing profits/losses in the ratio 5:2.
• The capitals of both partners are Rs 50,000 and Rs 20,000 respectively.
• Radha gets a salary of Rs 10,000 p.a. and Raman gets a salary of Rs 7,000 p.a.
• Radha advanced a loan of Rs 20,000.
• The interest on capital is charged at 6%.

Objective: To prepare a Proft and Loss Appropriation Account.

Answer:

Calculation of interests on capitals:

Interest on capital = (Capital × Rate)/100

For Radha:

• Interest on capital = (Rs 50,000 × 6)/100 = Rs 3,000

For Raman:

• Interest on capital = (Rs 20,000 × 6)/100 = Rs 1,200

Calculation of interest on loan:

Since no specific rate has been mentioned, the interest will be charged at 6%.

Interest on loan = (Loan × Rate)/100

For Radha:

• Interest on loan = (20,000 × Rate)/100 = Rs 1,200

Calculation of profit shares:

Since the ratio of profit shares between the partners is 5:2, the profit available must be distributed accordingly.

For Radha:

• Profit share = Rs 7,000 × 5/7 = Rs 5,000

For Raman:

• Profit share = Rs 7,000 × 2/7 = Rs 2,000

Answer 2

Concept: Profit and Loss Appropriation Account is a special account which is prepared by the firm for the distribution of profit and loss among all the partners.

Find: Prepare Profit and loss Appropriation account.

Solution:

Interest on Radha's laon=20,000×6%

                                         = 1200

                                 Profit and Loss Appropriation Account

Dr.                                 For the year ended 31st March, 2021                 Cr.

Particulars                    Amount               Particulars                Amount

To interest on capital                            By Net profit          

Radha 3,000                                        less interest on loan

Raman 1,200                 4,200              (29,400-1200)                 28,200

To salary A/C

Radha 10,000

Raman 7000                  17,000            

To P/L A/C

Radha 5000

Raman 2000                   7000                                                                  

                                        28,200                                                      28,200

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