Question

Ramesh and suresh were partners in a firm sharing profit in the ratio of the capitals contributed on commencement of business which were ₹80,000 and ₹60,000 respectively. The firm started business on 1April, 2005 . According to the partnership agreement interest on capital and drawing 12%and 10% per annum respectively. Ramesh and suresh are to get a monthly salary of ₹2000 and 3000 respectively. The profit for the year ended 31st March, 2006 before making above appropriation was ₹1,00,300.the drawing of the ramesh and suresh were ₹40,000 and ₹50,000 respectively. Interest on drawing amounted ₹2,000 for ramesh and ₹2,500 for suresh .prepare profit and loss appropriation account and partners' capital account .assuming that the capital are fluctuating.

Answer 1

Given data:

• Ramesh and Suresh are partners in a firm sharing profits and losses in the ratio of their capitals, which are Rs 80,000 and Rs 60,000 respectively.
• The interest on capital is to be charged at 12% p.a. and the interest on drawings is to be charged at 10% p.a.
• Ramesh and Suresh get a monthly salary of Rs 2,000 and Rs 3,000 respectively.
• The profit for the year was Rs 1,00,300.
• The drawings of Ramesh and Suresh were Rs 40,000 and Rs 50,000 respectively.
• The interest on drawings amounted to Rs 2,000 for Ramesh and Rs 2,500 for Suresh.

Objective: To prepare a Profit & Loss Appropriation Account and Parters' Capital Account.

Answer:

Calculation of interests on capitals:

Interest on capital = (Capital × Rate) ÷ 100

For Ramesh:

• Interest on capital = (Rs 80,000 × 12) ÷ 100 = Rs 9,600

For Suresh:

• Interest on capital = (Rs 60,000 × 12) ÷ 100 = Rs 7,200

Calculation of partners' salaries:

Since the partners get a monthly salary, their amounts will have to be multiplied by 12.

For Ramesh:

• Annual salary = Rs 2,000 × 12 = Rs 24,000

For Suresh:

• Annual salary = Rs 3,000 × 12 = Rs 36,000

Calculation of profit/loss sharing ratio:

As per the question, they share their profits and losses in the ratio of their capitals.

Their capitals are 80,000 and 60,000

Ratio = 80000:60000

Ratio = 8:6

Ratio = 4:3

Hence, they share their profits and losses in the ratio 4:3.

Calculation of profit shares:

Since the balancing figure appears on the debit side, they earn profits. The profit must be distributed in the ratio 4:3.

For Ramesh:

• Profit share = Rs 28,000 × 4/7 = Rs 16,000

For Suresh:

• Profit share = Rs 28,000 × 3/7 = Rs 12,000