X, Y and Z set up a partnership firm on 1.1.2017. They contributed Rs.150,000, Rs.120,000 and Rs.90,000 respectively as their capitals and decided to share profit and loss in the ratio of 3:2:1. They partnership deed provided that A is to be paid a salary of Rs. 3000 per month and B a commission of Rs.15,000. It also provided that interest on capital be allowed at 6% per annum. The drawings for the year were A Rs.18,000, B Rs.12,000 and C Rs.6,000. Interest on drawings was charged Rs. 810, Rs. 540 and Rs. 270 respectively. The net amount of profit as per profit and loss account for the year 2017 was Rs. 106,980. Required: You are required to prepare the profit & Loss Appropriation Account and Partner’s capital account after passing necessary journal entries.
Answers
Answer:
Calculation of interest on capital.
Interest on X capital
20,000×
100
6
=Rs1200
Interest on Y's capital
10,000×
100
6
=Rs600
Total interest (1200+600)=Rs1800
Total profits available = Rs.1500
As total interest on capital is more than total profits, so profits of Rs 1500 to be distributed between X & Y as per their interest on capital ratio.
X:Y
Interest on capital = 1200:600 or 2:1
∴ X share = 1500×
3
2
=Rs1000
Y share = 1500×
3
1
=Rs500
Part (ii)
When interest on capital is charge, complete interest on capital will be charged.
Total interest = Rs. 1800
Total Profit = Rs. 1500
There is loss of Rs. 300. This loss of Rs. 300 will be distributed between X and Y in 2:3 ratio.
X share of loss = 300*2/5 = Rs. 120
Y share of loss = 300*3/5 = Rs. 180.
Explanation:
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