A , B , C were partners in a firm having capitals of rs 50000, rs 50000 and - Accountancy - Accounting for Partnership Basic Concepts

Question

A , B , C were partners in a firm having capitals of rs 50000,
rs 50000 and rs 100000 Thier current account balances were A : Rs
10000 , B : Rs 5000 and C : Rs 2000 (Dr ) According to the
partnership deed the partners were entitled to an interest on
capital @ 10% p a C being the working partner was also entitled to
a salary of Rs 12000p a The profits were to be divided as :
(a) The first Rs 20000 in proportion to their capitals
(b) Next Rs 30000 in the ratio of 5:3:2
(c) Remaining profits to be shared equally
The firm made a profit of Rs 172000 before charging any of the
above items Prepare the profit and loss appropriation account and
pass the necessary journal entries for the appropriation of
profits

Komal Verma · Accepted Answer

Profit and Loss Appropriation Account For the year ended â€¦â€¦ Dr Cr Particulars Amount Rs Particulars Amount Rs Interest on Capital: Profit and Loss A/c A 5,000 (Net Profit) 1,72,000 B 5,000 C 10,000 20,000 Salary to C 12,000 Profit transferred to: Aâ€™s Capital A/c 50,000 Bâ€™s Capital A/c 44,000 Câ€™s Capital A/c 46,000 1,40,000 1,72,000 1,72,000 Working Notes: Calculation of Interest on Capital $I n t e r e s t o n A' s C a p i t a l = 50, 000 \times \frac{10}{100} = R s 5, 000 I n t e r e s t o n B' s C a p i t a l = 50, 000 \times \frac{10}{100} = R s 5, 000 I n t e r e s t o n C' s C a p i t a l = 1, 00, 000 \times \frac{10}{100} = R s 10, 000$ Calculation of distribution of profits Total profits = 1,72,000 â€“ (20,000 + 12,000) = Rs 1,40,000 (1) First Rs 20,000 to be distributed in proportion to their capitals $A : B : C R a t i o 50, 000 : 50, 000 : 1, 00, 000 o r, 1 : 1 : 2$ Therefore, $A' s \Pr o f i t S h a r e = 20, 000 \times \frac{1}{4} = R s 5, 000 B' s \Pr o f i t S h a r e = 20, 000 \times \frac{1}{4} = R s 5, 000 C' s \Pr o f i t S h a r e = 20, 000 \times \frac{2}{4} = R s 10, 000$ (2) Next, Rs 30,000 is to be shared in the ratio of 5 : 3 : 2 Therefore, $A' s \Pr o f i t S h a r e = 30, 000 \times \frac{5}{10} = R s 15, 000 B' s \Pr o f i t S h a r e = 30, 000 \times \frac{3}{10} = R s 9, 000 C' s \Pr o f i t S h a r e = 30, 000 \times \frac{2}{10} = R s 6, 000$ (3) Remaining profits of Rs 90,000 (i e 1,40,000 â€“ 20,000 â€“ 30,000) is to be shared equally Therefore, $A' s \Pr o f i t S h a r e = 90, 000 \times \frac{1}{3} = R s 30, 000 B' s \Pr o f i t S h a r e = 90, 000 \times \frac{1}{3} = R s 30, 000 C' s \Pr o f i t S h a r e = 90, 000 \times \frac{1}{3} = R s 30, 000$ $S o, T o t a l \Pr o f i t s h a r e o f A = 5, 000 + 15, 000 + 30, 000 = R s 50, 000 T o t a l \Pr o f i t s h a r e o f B = 5, 000 + 9, 000 + 30, 000 = R s 44, 000 T o t a l \Pr o f i t s h a r e o f C = 10, 000 + 6, 000 + 30, 000 = R s 46, 000$ Journal Date Particulars L F Debit Amount Rs Credit Amount Rs Profit and Loss Appropriation A/c Dr 20,000 To Aâ€™s Capital A/c 5,000 To Bâ€™s Capital A/c 5,000 To Câ€™s Capital A/c 10,000 (Interest on capital paid to A, B, C) Profit and Loss Appropriation A/c Dr 12,000 To Câ€™s Capital A/c 12,000 (Salary paid to C) Profit and Loss Appropriation A/c Dr 1,40,000 To Aâ€™s Capital A/c 50,000 To Bâ€™s Capital A/c 44,000 To Câ€™s Capital A/c 46,000 (Profit transferred to A, B and C)

Profit and Loss Appropriation Account For the year ended ……..
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Interest on Capital:			Profit and Loss A/c
A	5,000		(Net Profit)	1,72,000
B	5,000
C	10,000	20,000
Salary to C		12,000
Profit transferred to:
A’s Capital A/c	50,000
B’s Capital A/c	44,000
C’s Capital A/c	46,000	1,40,000
		1,72,000		1,72,000

Journal
Date	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
	Profit and Loss Appropriation A/c	Dr.		20,000
	To A’s Capital A/c				5,000
	To B’s Capital A/c				5,000
	To C’s Capital A/c				10,000
	(Interest on capital paid to A, B, C)

	Profit and Loss Appropriation A/c	Dr.		12,000
	To C’s Capital A/c				12,000
	(Salary paid to C)

	Profit and Loss Appropriation A/c	Dr.		1,40,000
	To A’s Capital A/c				50,000
	To B’s Capital A/c				44,000
	To C’s Capital A/c				46,000
	(Profit transferred to A, B and C)