A and B are partners sharing profits and losses in the ratio of 3 : 1. On 1st April, 2025, their capitals were: A ₹ 5,00,000 and B ₹ 3,00,000. During the year ended 31st March, 2026 they earned a net profit of  ₹ 5,00,000. The terms of partnership are:
(a) Interest on capital is to allowed @ 6% p.a.
(b) A will get a commission @ 2% on turnover.
(c) B will get a salary of  ₹ 5,000 per month.
(d) B will get commission of 5% on profits after deduction of all expenses including such commission.
Partners' drawings for the year were: A ₹ 80,000 and B ₹ 60,000. Turnover for the year was  ₹ 30,00,000.
After considering the above facts, you are required to prepare Profit and Loss Appropriation Account and Partners' Capital Accounts.

Answer:

Profit and Loss Appropriation Account for the year ended 31st March, 2026
Dr.				Cr.
Particulars		( ₹)	Particulars	( ₹)
Interest on  Capital:			Profit and Loss A/c	5,00,000
A’s Capital A/c	30,000		(Net Profit)
B’s Capital A/c	18,000	48,000
B’s Salary (5,000 × 12)		60,000
Partner’s  Commission
A’s Capital A/c	60,000
B’s Capital A/c	15,810	75,810
Profit transferred to:
A’s Capital A/c	2,37,143
B’s Capital A/c	79,057	3,16,190
		5,00,000		5,00,000

 

Partners’ Capital Accounts
Dr.					Cr.
Particulars	A ( ₹)	B ( ₹)	Particulars	A ( ₹)	B ( ₹)
Drawings A/c	80,000	60,000	Balance b/d	5,00,000	3,00,000
Balance c/d	7,47,143	4,12,857	Interest on Capital A/c	30,000	18,000
			Commission A/c	60,000	15,810
			Salary A/c	-	60,000
			P/L Appropriation A/c	2,37,143	79,057
	8,27,143	4,72,857		82,714	47,286

 

Working Notes:

WN 1 Calculation of Interest on Capital

Interest on A’s capital=5,00,000×6/100=30,000

Interest on B’s capital=3,00,000×6/100=18,000

 

WN 2 Calculation of Commission to Partners

A’s commission = 2% on turnover

=30,00,000×2/100=60,000

Commission to B = 5% on Profits after all Expense including such Commission

Profits after all expense = 5,00,000 -₹ 48,000 -₹ 60,000 -₹ 60,000 = ₹ 3,32,000

B’s commission= Profit after all expenses × Rate of commission/100+Rate

3,32,000×5/105=15,810 (approx.)

 

WN 3 Calculation of Profit Share of each Partner

Profit available for Distribution = 5,00,000 -₹ 48,000 -₹ 60,000 -₹ 60,000 -₹15,810 = ₹ 3,16,190

Profit sharing ratio = 3 : 1

A’s profit share= 3,16,190×3/4=2,37,143

B’s profit share= 3,16,190×1/4=79,057

Amit, Binita and Charu are three partners. On 1st April, 2025, their Capitals stood as: Amit  ₹ 1,00,000, Binita ₹ 2,00,000 and Charu ₹ 3,00,000. It was decided that:
(a) they would receive interest on Capital @ 5% p.a.,
(b) Amit would get a salary of  ₹ 10,000 per month,
(c) Binita would receive commission @ 5% of net profit after deduction of commission, and
(d) 10% of the net profit would be transferred to the General Reserve.
Before the above items were taken into account, the profit for the year ended 31st March, 2026 was  ₹ 5,00,000.
Prepare Profit and Loss Appropriation Account and the Capital Accounts of the partners.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2025
Dr.					Cr.
Particulars			( ₹)	Particulars	( ₹)
Interest on Capital:				Profit and Loss A/c (Net Profit)	5,00,000
Amit’s Capital A/c	5,000
Binita’s Capital A/c	10,000
Charu’s Capital A/c	15,000		30,000
Salary to Amit (10,000 × 12)			1,20,000
Commission to Binita			23,810
General Reserve			50,000
Profit transferred to:
Amit’s Capital A/c		92,063
Binita’s Capital A/c		92,063
Charu’s Capital A/c		92,064	2,76,190
			33,360		33,360

 

Partners’ Capital Accounts
Dr.					Cr.
Particulars	Amit	Binita	Charu	Particulars		Amit	Binita	Charu
				Balance b/d		1,00,000	2,00,000	3,00,000
				Interest on Capital A/c		5,000	10,000	15,000
				Salary A/c		1,20,000	–	–
				Commission		–	23,810	–
Balance c/d	3,17,063	3,25,873	4,07,064	P/L Appropriation A/c		92,063	92,063	92,064
	3,17,063	3,25,873	4,07,064			3,17,063	3,25,873	4,07,064

Working Notes:

WN 1Calculation of Interest on Capital

Interest on Amit=1,00,000×5÷100=5,000

Interest on Binita=2,00,000×5÷100=10,000

Interest on Charu=3,00,000×5÷100=15,000

 

WN 2Calculation of Commission to Binita

Commission to Binita = 5% on Net Profits after Commission
Commission to Binita=Net Profit ×Rate100+Rate=5,00,000×5÷105=₹ 23,810

 

WN 3Calculation of Amount to be transferred to General Reserve

Amount for General Reserve = 10% of Profit

=5,00,000×10÷100=₹ 50,000

WN 4Calculation of Profit Share of each Partner

Profit available for Distribution = 5,00,000 - 30,000 - 1,20,000 - 23,810 - 50,000

= ₹ 2,76,190
Profit share of Amit, Binita and Charu each = 2,76,190×1÷ 3= ₹ 92,063

 

Sajal and Kajal are partners sharing profits and losses in the ratio of 2 : 1. On 1st April, 2025, their Capitals were:
Sajal – ₹ 5,00,000 and Kajal – ₹ 4,00,000.

Prepare Profit and Loss Appropriation Account and Partners' Capital Accounts at the end of 31st March, 2026 from the following information:
(a) Interest on Capital is to be allowed @ 5% p.a.
(b) Interest on the loan advanced by Kajal for the whole year, the amount of loan being ₹ 3,00,000.
(c) Interest on partners' drawings @ 6% p.a.
Drawings: Sajal ₹ 1,00,000 and Kajal ₹ 80,000.
(d) 10% of the divisible profit is to be transferred to Reserve.
Profit, before giving effect to the above, for the year ended 31st March, 2026 is ₹ 7,02,600.

Answer:

Profit and Loss Account for the year ended 31st March, 2026
Particulars	₹	Particulars	₹
Interest on Kajal’s loan @ 6% p.a.	18,000	Profit	7,02,600
Profit transferred to P/L Appropriation A/c	6,84,600
	7,02,600		7,02,600

 

Profit and Loss Appropriation Account for the year ended 31st March, 2026
Particulars		₹	Particulars		₹
Interest on Capital A/c:			Profit and Loss A/c		6,84,600
- Sajal’s Capital A/c	25,000		Interest on Drawings A/c:
- Kajal’s Capital A/c	20,000	45,000	- Sajal’s Capital A/c	3,000
Reserve		64,500	- Kajal’s Capital A/c	2,400	5,400
Profit transferred to:
- Sajal’s Capital A/c	3,87,000
- Kajal’s Capital A/c	1,93,500	5,80,500
		6,90,000			6,90,000

 

 

Partners' Capital Accounts
Particulars	Sajal	Kajal	Particulars	Sajal	Kajal
Drawings A/c	1,00,000	80,000	Balance b/d	5,00,000	4,00,000
Interest on Drawings A/c	3,000	2,400	Interest on Capital A/c	25,000	20,000
Balance c/d	8,09,000	5,31,100	P&L Appropriation A/c	3,87,000	1,93,500
	9,12,000	6,13,500		9,12,000	6,13,500

         

Working Notes:

WN 1: Calculation of Interest on Capital

Interest on Sajal’s capital = ₹ 5,00,000 × 5% = ₹ 25,000

Interest on Kajal’s capital = ₹ 4,00,000 × 5% = ₹ 20,000

 

WN 2: Calculation of Interest on Drawings

Sajal’s Drawing = ₹ 1,00,000 × 6% × 6/12 = ₹ 3,000

Kajal’s Drawing = ₹ 80,000 × 6% × 6/12 = ₹ 2,400

WN 3: Calculation of Amount to be Transferred to Reserve

Divisible Profit = Net Profit + Interest on Drawings - Interest on Capital
= 6,84,600 + 5,400 – 45,000
= ₹ 6,45,000

Amount of Reserve = ₹ 6,45,000 × 10% = ₹ 64,500

WN 4: Calculation of Profit Share of Each Partner

Profit available for distribution
= 6,84,600 + 5,400 – (45,000 + 64,500)
= ₹ 5,80,500

Profit Sharing Ratio: 2:1

Sajal’s Share = ₹ 5,80,500 × 2/3 = ₹ 3,87,000

Kajal’s Share = ₹ 5,80,500 × 1/3 = ₹ 1,93,500

 

Ali and Bahadur are partners in a firm sharing profits and losses as Ali 70% and Bahadur 30%. Their respective capitals as at 1st April, 2025 stand as Ali  ₹ 2,50,000 and Bahadur  ₹ 2,00,000. The partners are allowed interest on capitals @ 5% p.a. Drawings of the partners during the year ended 31st March, 2026 amounted to  ₹ 35,000 and  ₹ 25,000 respectively.
Profit for the year, before charging interest on capital and annual salary of Bahadur @  ₹ 30,000, amounted to  ₹ 4,00,000, 10% of divisible profit is to be transferred to Reserve.
You are asked to show Partners' Current Account and Capital Accounts recording the above transactions.

Answer:

Partners’ Capital Accounts
Dr.			Cr.
Particulars	Ali	Bahadur	Particulars	Ali	Bahadur
			Balance b/d	2,50,000	2,00,000
Balance c/d	2,50,000	2,00,000
	2,50,000	2,00,000		2,50,000	2,00,000

 

Partners’ Current Accounts
Dr.					Cr.
Particulars	Ali	Bahadur	Particulars	Ali	Bahadur
Drawings A/c	35,000	25,000	Interest on Capital A/c	1,2500	1,0000
			Bahadur’s Salary A/c	-	3,0000
Balance c/d	1,96,420	1,08,830	P/L Appropriation A/c	21,8920	9,3830
	2,31,420	1,33,830		23,1420	13,3830

 

Working Notes:

 

WN 1

Profit and Loss Appropriation Account for the year ended March 31, 2026
Dr.				Cr.
Particulars		( ₹)	Particulars	( ₹)
Interest on Capital:			Profit and Loss A/c	4,00,000
Ali	12,500
Bahadur	10,000	22,500
Reserve		34,750
Bahadur’s Salary		30,000
Profit transferred to:
Ali’s Capital A/c	2,18,920
Bahadur’s Capital A/c	93,830	3,12,750
		4,00,000		4,00,000

 

WN 2Calculation of Interest on Capital

Interest on Ali’s capital=2,50,000×5/100=12,500

Interest on Bahadur’s capital=2,00,000×5/100=10,000

 

WN 3Calculation of Amount to be transferred to Reserve
Amount transferred to Reserve=10% of Divisible Profits =10%×(4,00,000-22,500-30,000)=₹ 34,750

 

WN 4Calculation of Profit Share of each Partner

Profit available for distribution = 4,00,000-₹ 22,500-₹ 30,000- ₹ 3,4750 = ₹ 31,2750

Ali's Profit Share = 3,12,750×70÷100=2,18,920

Bahadur's Profit Share = 3,12,750×30÷100=93,830

 

Appropriations more than Available Profits

Neeraj and Surya are partners sharing profits and losses in the ratio of 2: 1.Their capitals are ₹ 4,00,000 and ₹ 2,00,000 respectively. Neeraj is entitled to interest on capital @12% p.a. and Surya is entitled to salary of ₹ 6,000 per month. Profit before providing for interest on capital and partner's salary for the year ended 31st March, 2026 was ₹ 50,000. Show the distribution of profits.

Answer:

Interest on capital to Neeraj - ₹ 48,000

Salary to Surya = ₹ 6,000×12= ₹ 72,000

Total of Interest and salary = 48,000+72,000= 1,20,000

Profit is 50,000 which less than interest and salary. Therefore, profit will be distributed in the ratio of appropriation

Below is the appropriation

	Neeraj	Surya
Interest on capital	48,000	-
Salary	-	72,000
Total	48,000	72,000
Ratio of appropriation	2	3

 

Neeraj = 50,000×2÷5=20,000

Surya = 50,000×3÷5=30,000