Reena and raman partners with capital of rs.3,00,000and rs.1,00,000 respectively the profit as per p&l account for the year ended 31st 2017 one was rate 1,20,000 interest on capital is to be allowed at 6% p.a. Raman was entitled to a salary of rs.30,000 p.a. the drawings of partner were rs. 30,000 and 20,000 the interest on drawings to be charged to Reena was rs.1,000 and to Raman rs. 500.
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Correct question:
Reena and Raman partners with capitals of Rs 3,00,000 and Rs 1,00,000 respectively. The profit as per profit & loss account for the year ended 31st March, 2017 was 1,20,000. The interests on capitals are to be allowed at 6% p.a. Raman was entitled to a salary of Rs 30,000 p.a. The drawings of the partners were Rs 30,000 and Rs 20,000 respectively. The interest on drawings to be charged to Reena was Rs 1,000 and to Raman Rs 500. Prepare a profit & loss appropriation account.
Answer:
Calculation of interests on capitals:
Interest on capital = Capital × (Rate ÷ 100)
For Reena:
- Interest on capital = Rs 3,00,000 × (6 ÷ 100) = Rs 18,000
For Raman:
- Interest on capital = Rs 1,00,000 × (6 ÷ 100) = Rs 6,000
Interests on capitals are to be recorded on the debit side of the appropriation account.
Salaries are to be recorded on the debit side of the appropriation account.
The profit for the year is to be recorded on the credit side of the appropriation account.
Interests on drawings are to be recorded on the credit side of the appropriation account.
Calculation of profit/loss:
To determine profit/loss, observe the debit and the credit sides. If the balancing figure appears on the debit side, it is profit. Else, loss.
Credit = Rs 1,20,000 + Rs 1,000 + Rs 500 = Rs 1,21,500
Debit = Rs 18,000 + Rs 6,000 + Rs 30,000 = Rs 54,000
Balancing figure = Rs 1,21,500 - Rs 54,000 = Rs 67,500
Calculation of profit distribution:
Since no specific profit-sharing ratio is mentioned, it is assumed that they share it equally, i.e., in the ratio 1:1. Hence, the profit will be distributed accordingly.
For Reena:
- Profit share = Rs 67,500 × 1/2 = Rs 33,750
For Raman:
- Profit share = Rs 67,500 × 1/2 = Rs 33,750
The Profit & Loss Appropriation account has been attached below.
