Provide the solution for the following
Solution:
PROFIT & LOSS APPROPRIATION ACCOUNT
for the year ended 31st March, 2022
WORKING NOTES:
(1) Computation of Parul's Commission
Sales = Rs.50,00,000
Rate of Commission on sales = 2%
Parul's Commission = Rs.50,00,000 * 2% = Rs.1,00,000
(2) Computation of Interest on Partner's Capital
Interest on Kabir's Capital = Rs.5,20,000 * 5% = Rs.26,000
Interest on Zoravar's Capital = Rs.3,20,000 * 5% = Rs.16,000
Interest on Parul's Capital = Rs.2,00,000 * 5% = Rs.10,000
(3) Computation of Interest on Partner's Drawings
Interest on Kabir's Drawings = Rs.60,000 * 5% * 6/12 = Rs.1,500
Interest on Zoravar's Drawings = Rs.60,000 * 5%* 6/12 = Rs.1,500
Interest on Parul's Drawings = Rs.60,000 * 5% * 6/12= Rs.1,500
Note: As question has not specified the date/time of drawing so Interest on drawing is calculated on the basis of average period i.e; 6 months
(4) Computation of Interest on Capital to be provided on Partners' Capital
Net profit + Interest on Drawings = Rs.1,55,500 + Rs.4,500 = Rs.1,60,000
Appropriations except Interest on Capital= Salary+ Commission = Rs.48,000 + Rs.1,00,000 = 1,48,000
Profit Before Interest on capital = Rs.1,60,000 - Rs.1,48,000 = Rs.12,000
Total Interest on Capital ( W.N 2) = Rs.26,000 + Rs.16,000 +10,000 = Rs.52,000
Profit Before Interest on capital is less than Interest on Capital so Interest on Capital will be allowed to the extent of net profit in the ratio of interest on capital of each partner.
Ratio of Interest on capital = 26,000:16,000:10,000 = 13:8:5
Interest on capital to be provided on Kabir's Capital = Rs.12,000 * 13/26 = Rs.6,000
Interest on capital to be provided on Zoravar's Capital = Rs.12,000 * 8/26 = Rs.3,692
Interest on capital to be provided on Parul's Capital = Rs.12,000 * 5/26 = Rs.2,308
Note:There is no divisible profit left so nothing will be transferred to General Reserve.
PROFIT & LOSS APPROPRIATION ACCOUNT
for the year ended 31st March, 2022
| PARTICULARS | AMOUNT (Rs.) | PARTICULARS | AMOUNT (Rs.) |
| To Salary: | By Profit & Loss A/c- Net Profit | 1,55,500 | |
| Kabir's Capital A/c | 24,000 | By Interest on Drawings: (WN3) | |
| Zoravar's Capital A/c | 24,000 | Kabir's Capital A/c | 1,500 |
| To Commission :(WN1) | Zoravar's Capital A/c | 1,500 | |
| Parul's Capital A/c | 1,00,000 | Parul's Capital A/c | 1,500 |
| To Interest on Capital: (WN 2 & WN 4) | |||
| Kabir's Capital A/c | 6,000 | ||
| Zoravar's Capital A/c | 3,692 | ||
| Parul's Capital A/c | 2,308 | ||
| TOTAL | 1,60,000 | TOTAL | 1,60,000 |
WORKING NOTES:
(1) Computation of Parul's Commission
Sales = Rs.50,00,000
Rate of Commission on sales = 2%
Parul's Commission = Rs.50,00,000 * 2% = Rs.1,00,000
(2) Computation of Interest on Partner's Capital
Interest on Kabir's Capital = Rs.5,20,000 * 5% = Rs.26,000
Interest on Zoravar's Capital = Rs.3,20,000 * 5% = Rs.16,000
Interest on Parul's Capital = Rs.2,00,000 * 5% = Rs.10,000
(3) Computation of Interest on Partner's Drawings
Interest on Kabir's Drawings = Rs.60,000 * 5% * 6/12 = Rs.1,500
Interest on Zoravar's Drawings = Rs.60,000 * 5%* 6/12 = Rs.1,500
Interest on Parul's Drawings = Rs.60,000 * 5% * 6/12= Rs.1,500
Note: As question has not specified the date/time of drawing so Interest on drawing is calculated on the basis of average period i.e; 6 months
(4) Computation of Interest on Capital to be provided on Partners' Capital
Net profit + Interest on Drawings = Rs.1,55,500 + Rs.4,500 = Rs.1,60,000
Appropriations except Interest on Capital= Salary+ Commission = Rs.48,000 + Rs.1,00,000 = 1,48,000
Profit Before Interest on capital = Rs.1,60,000 - Rs.1,48,000 = Rs.12,000
Total Interest on Capital ( W.N 2) = Rs.26,000 + Rs.16,000 +10,000 = Rs.52,000
Profit Before Interest on capital is less than Interest on Capital so Interest on Capital will be allowed to the extent of net profit in the ratio of interest on capital of each partner.
Ratio of Interest on capital = 26,000:16,000:10,000 = 13:8:5
Interest on capital to be provided on Kabir's Capital = Rs.12,000 * 13/26 = Rs.6,000
Interest on capital to be provided on Zoravar's Capital = Rs.12,000 * 8/26 = Rs.3,692
Interest on capital to be provided on Parul's Capital = Rs.12,000 * 5/26 = Rs.2,308
Note:There is no divisible profit left so nothing will be transferred to General Reserve.