During the year profit prior to interest on capital but after charging b' s salary amounted to ?, 12500.... What this line mean ????
A and B are partners sharing profits in the ratio of 3:2 with capitals of ₹50,000 and ₹30,000 respectively. Interest on capital is agreed @ 6% p.a. B is to be allowed an annual salary of ₹2,500. During the year profit prior to interest on capital but after charging B's salary amounted to ₹12,500. A provision of 5% of the profits is to be made in respect of Manager's Commission.
Dear student this line means that there was a profit of RS. 12500 from which no appropriations are made yet except B's salary . It's implication will be that while writing available balance on credit of profit and loss appropriation Account B:s salary i.e. rs. 2500 will be added back to RS. 12500. Regards