Question

X and Y are partners with capitals of 100000 and 80000 respectively and their profit sharing 2:1 . Interest on capital is agreed @12%p.a Y is to be allowed an annual salary of rs 6000 The profits of the year 2014 amounted to 50000 . Manager is entitled to a commission of 10% of the profits .
Prepare profit and loss appropriation account and capitals accounts .

Answer 1

Given data:

• X and Y are partners in a firm having capitals Rs 1,00,000 and Rs 80,000 respectively.
• They share profits/losses in the ratio 2:1.
• Interest on capital is to be charged at 12% p.a.
• Y is entitled to an annual salary of Rs 6,000.
• The net profit for the year is Rs 50,000.
• Manager's commission is charged at 10% of the profits.

Objective: To prepare a Profit & Loss Appropriation A/cand Capital A/c.

Answer:

Calculation of interest on capitals:

Interest on capital = (Capital × Rate) ÷ 100

For X:

• Interest on capital = (Rs 1,00,000 × 12) ÷ 100 = Rs 12,000

For Y:

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

Calculation of profit shares:

As per the question, the profits/losses are shared in the ratio 2:1. Hence, the available profit must be distributed accordingly.

For X:

• Profit share = Rs 22,400 × 2/3 = Rs 14,933.33

For Y:

• Profit share = Rs 22,400 × 1/3 = Rs 7466.66

NOTE: Appropriate modifications have been made while preparing the accounts due to the avoidance of decimal values. Manager's commission will not be shown either since it is shown only if it has been charged to the partner(s).