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.
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  


Working Notes:
Calculation of Interest on Capital
Calculation of distribution of profits
Total profits = 1,72,000 – (20,000 + 12,000) = Rs 1,40,000
(1) First Rs 20,000 to be distributed in proportion to their capitals
Therefore,
(2) Next, Rs 30,000 is to be shared in the ratio of 5 : 3 : 2.
Therefore,
(3) Remaining profits of Rs 90,000 (i.e.1,40,000 – 20,000 – 30,000) is to be shared equally Therefore,
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)



