SPECTRUM ACCOUNTANCY, 8. On April 1, 2015 X and Y commenced business as partners with an initial capital of 20,000 20 30,000 respectively. The partnership deed provided, inter alia that : (1) Profits & losses shall be shared in the ratio of 2 : 3 as between them; (ii) Partners shall be entitled to interest on capital at 6% p.a. ; and (iii) Interest on drawings shall be charged at 8% p.a. During the year ended 31st March, 2016, the firm made a profit of 19,280 before intereste capital and drawings. During the year, partner X withdrew 3,000 and partner Y withdrew 35,00 at the end of each quarter commencing from 30th June, 2015. Prepare Profit & Loss Appropriation Account for the year ending 31st March, 2016. [Ans. Share of Profit X 6,896 ; Y* 10,34
Answers
Given data:
- The capitals of X and Y are Rs 20,000 and Rs 30,000 respectively.
- Profits and losses are shared in the ratio 2:3.
- Interest on capital is charged at 6% p.a.
- Interest on drawings is charged at 8% p.a.
- X and Y withdrew Rs 3,000 and Rs 3,500 respectively at the end of each quarter from 30th June.
To prepare: A profit and loss appropriation a/c.
Answer:
Calculation of interest on drawings:
Since the drawings were made at the end of each month, and commenced from the 30th of June, the formula to calculate the interest on drawings is as follows:
Interest on drawings = (Drawings × 4 [4 quarters after the 30th of June] × Rate × 4.5 [end of each month])/(100 × 12)
For X:
Interest on drawings = (Rs 3,000 × 4 × 8 × 4.5)/1200 = Rs 360
For Y:
Interest on drawings = (Rs 3,500 × 4 × 8 × 4.5)/1200 = Rs 420
Calculation of interest on capital:
Interest on capital = (Capital × Rate)/100
For X:
Interest on capital = (Rs 20,000 × 6)/100 = Rs 1,200
For Y:
Interest on capital = (Rs 30,000 × 6)/100 = Rs 1,800
Calculation of profit/loss:
To calculate the profit/loss, add the items on either side and observe which side has the higher amount. Subtract the side with the lesser amount from the one with the higher amount. If the balancing figure appears on the debit side, it becomes profit. Else, loss.
Credit side = Rs 19,280 + Rs 360 + Rs 420 = Rs 20,060
Debit side = Rs 1,200 + Rs 1,800 = Rs 3,000
Since the credit side is more, the balancing figure will be on the debit side, i.e., profit.
Profit = Rs 20,060 - Rs 3,000 = Rs 17,060
Calculation of profit share:
Since the profits/losses are shared in the ratio 3:2, the profit must be distributed accordingly.
For X:
Profit share = Rs 17,060 × 2/5 = Rs 6,824
For Y:
Profit share = Rs 17,060 × 3/5 = Rs 10,236
