Question

Ram and Shyam are partners sharing profits and losses equally. Financial statements are prepared for the year ended 31st March, 2021, which show a profit of Rs 1,50,000 before allowing interest on a loan of Rs 50,000 from Shyam @ 10% p.a. Each partner is entitled to salary as follows: Ram Rs 15,000 p.a. Shyam Rs 10,000 p.a. What is Ram's capital total appropriation of profit for the year ended 31st March, 2021?
a. . Rs 77,500 b. Rs 70,000 c. Rs 75,000 d. Rs 80,000​

Answer 1

Answer: The correct answer is option c) 75,000

Explanation:

Concept of Profit & Loss Appropriation Account:

Profit and Loss Appropriation A/c is an account prepared and maintained by a partnership firm that displays the distribution of profit or losses amongst the partners or their capital accounts.

Now, according to the question:
Profit for the year ending 31st March, 2021= Rs.150000
Interest on loan Shyam's loan= $10$% of Rs.50000= Rs.5000
Salary to partners:
Ram= Rs 15000 p.a
Shyam- Rs 10000 p.a

∴ Profit to be distributed between Ram and Shyam= 150000-5000-15000-10000
= Rs.120000, to be equally distributed between Ram and Shyam

∴ Ram's total appropriation of profit= His salary+ Profit share
= 15000+60000
= Rs.75000
Similarly, Shyam's total appropriation of profits= His salary+ Profit share
= 10000+60000
= Rs.70000

Note: Interest on Shyam's loan is not his part of profit, as it would be given to him even in case of loss, being a liability for the firm.