X and Y are partners for the profit sharing ratio 3:2. Their capital as on 31st March, 2020 are Rs.180000 and Rs.120000. On 01.07.2020 X had introduced additional capital Rs.80000 and Y had introduced Rs.20000 and both had withdrawn out of capital Rs.60000. During the year they made drawing of Rs.30000 each. Interest on capital is provided @10% p.a. and interest on drawing is charged @6% p.a.
X is entitled to a salary of Rs.1200 per month and Y is entitled to commission @5% on net profit after charging interest on capital, salary and such commission. Company transfer 10% of divisible profit to general reserve every year as per policy. X charges rent to firm for the building he has given to use Rs.1000 per month. Y had given loan to firm but no provision was made in the deed for the interest on loan. Y demanding interest on loan @10% p.a. y’s loan amount is RS. 50000 Profit was shared equally by both the partner without considering above provisions. You are required to prepare Profit and Loss Appropriation Account and rectify the error. Show your working note clearly. Profit for the year is Rs 32000
Answer:
(i) Profit and Loss Adjustment a/c
Dr. Cr.
Particulars Amount Particulars Amount
To Manager’s
Commission
(30000*5%) 1500 By Profit and loss a/c
(after Y’s salary) 24000
To Profit transferred to
Profit and loss appropriation a/c 28500 By Y’s salary 6000
30000 30000
(ii) Profit and Loss Appropriation a/c
( for the year ended 31st March, 2018)
Dr. Cr.
Particulars Amount Particulars Amount
To Salary to Y 6000 By Profit and Loss Adjustment a/c 28500
To Interest on Capital:
– X’s Capital a/c
– Y’s Capital a/c
4000
3000
To Profit transferred to:
– X’s Capital a/c
– Y’s Capital a/c
9300
6200
28500 28500