Sajal and Kajal are partners sharing profits and losses in the ratio of 2 : 1. On 1st April, 2023 their Capitals were: Sajal –  ` 50,000 and Kajal –  ` 40,000.
Prepare Profit and Loss Appropriation Account and the Partners' Capital Accounts at the end 31^st March, 2023 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  ` 30,000.
(c) Interest on partners' drawings @ 6% p.a. Drawings: Sajal ` 10,000 and Kajal ` 8,000.
(d) 10% of the divisible profit is to be transferred to Reserve.
Net profit for the year ended 31st March, 2023 is  ` 68,460.
Note: Net profit means net profit after debit of interest on loan by the partner.

Profit and Loss Account for the year ended 31st March, 2023
Dr.			Cr.
Particulars	( `)	Particulars	( `)
Interest on Kajal’s loan@ 6% p.a.	1,800	Profit	70,260
Profit transferred to P/L Appropriation A/c	68,460
	70,260		70,260

 

Profit and Loss Appropriation Account for the year ended 31st  March,  2023
Dr.					Cr.
Particulars		( `)	Particulars		( `)
Interest on Capital A/c:			Profit and Loss A/c		68,460
Sajal’s Capital A/c	2,500
Kajal’s Capital A/c	2,000	4,500	Interest on Drawings A/c:
			Sajal’s Capital A/c	300
Reserve		6,450	Kajal’s Capital A/c	240	540
Profit transferred to:
Sajal’s Capital A/c	38,700
Kajal’s Capital A/c	19,350	58,050
		69,000			69,000

 

Partners’ Capital Accounts
Dr.			Cr.
Particulars	Sajal ( `)	Kajal ( `)		Particulars	Sajal ( `)	Kajal ( `)
Drawings A/c	10,000	8,000		Balance b/d	50,000	40,000
Interest on Drawings A/c	300	240		Interest on Capital A/c	2,500	2,000
				P&L Appropriation A/c	38,700	19,350
Balance c/d	80,900	53,110
	91,200	61,350			91,200	61,350

Working Notes:

WN 1Calculation of Interest on Capital

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

Interest on Kajal’s capital=20,000×5/100=2,000

 

WN 2Calculation of Interest on Drawings

Interest on Sajal’s Drawing=10,000×6/100×6/12=300

Interest on Kajal’s Drawing=8,000×6/100×6/12=240

 

WN 3Calculation of Amount to be transferred to Reserve

Amount for Reserve = 10% of Divisible Profit

Divisible Profit = Profit + Interest on Drawings -` Interest on Capital

= 68,460 + 540  4,500 = ` 64,500

Amount of reserve =64,500×10/100=6,450

 

WN 4Calculation of Profit Share of each Partner

Profit available for Distribution = 68,460 + 540 – (` 4,500+` 6,450) = ` 58,050

Profit sharing ratio = 2 : 1

Sajal’s profit share = 58,050×2/3=38700

kajal’s profit share = 58,050×1/3=19350

 

Ali the Bahadur are partners in a firm sharing profits and losses as Ali 70% and Bahadur 30%. Their respective capitals as at 1st April, 2023 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, 2024 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.

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, 2024
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

 

Kabir, Zoravar and Parul are partners sharing prohts in the ratio of 5 :3 :2.Their capitals as on 1st April, 2023 were: Kabir- `5,20,000, Zoravar-`3,20,000 and Parul - `2,00,000.

The Partnership Deed provided as follows:

(i) Kabir and Zoravar each will get salary of `24,000 p.a.

(ii) Parul will get commission of 2% of Sales.

(iii) Interest on capital is to be allowed @ 5% p.a.

(iv) Interest on Drawings is to be charged @ 5% p.a.

(v) 10% of Divisible Profit is to be transferred to General Reserve.

Sales for the year ended 31st March, 2023 were `50,00,000. Drawings by each of the partners during the year was `60,000. Net Prom for the year was `1,55,500.

Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2023.

 

Profit and loss appropriation account year ended 31st March, 2023
Particulars	`	Particulars	`
To Profit transferred Kabir  -1,60,000×5/20=40,000 Zoravar-1,60,000×4/20=32,000 Parul-1,60,000×11/20=88,000	160,000	By  Net profit By Interest on Drawings Kabir- 60,000×5/100×5/12=1,500 Zoravar-60,000×5/100×5/12=1,500 Parul-60,000×5/100×5/12=1,500	1,55,500 4,500
	1,60,000		1,60,000

 

Working note;

Profit and loss appropriation account year ended 31st March, 2023
Particulars	`	Particulars	`
To Salary Kabir  -24,000 Zoravar-24,000 To Commission Parul=50,00,000×2/100=1,00,000   To Interest on capital Kabir  -5,20,000×5/100=26,000 Zoravar-3,20,000×4/20=16,000 Parul-2,00,000×10/20=10,000	48,000   1,00,000         52,000	By  Net profit By Interest on Drawings Kabir  -60,000×5/100×5/12=1,500 Zoravar-60,000×5/100×5/12=1,500 Parul-60,000×5/100×5/12=1,500	1,55,500 4,500
	2,00,000		1,60,000

 

Ratio of appropriation will be calculated for insufficient profit distribution given below;

Kabir  - Salary + Interest on capital

=24,000+26,000=50,000

Zoravar- Salary + Interest on capital

=24,000+16,000=40,000

Parul- Commission + Interest on capital

=1,00,000+10,000=1,10,000

Ratio of appropriation = 50,000 : 40,000 :1,10,000=5:4:11

 

X and Y entered into partnership on 1st April, 2018. Their capitals as on 1st April, 2023 were ` 2,00,000 and  ` 1,50,000 respectively. On 1st October, 2023, X gave  ` 50,000 as loan to the firm. As per the provisions of the partnership Deed:
(i) 20% of Profits before charging interest on Drawings but after making appropriations to be transferred to General Reserve.
(ii) Interest on capital at 12% p.a. and Interest on Drawings @ 10% p.a.
(iii) X to get monthly salary of  ` 5,000 and Y to get salary of  ` 22,500 per quarter.
(iv) X is entitled to a commission of 5% on sales. Sales for the year were  ` 3,50,000.
(v)  Profit to be shared in the ratio of their capitals up to  ` 1,75,000 and balance equally.
Profit for the year ended 31st March, 2023 before allowing or charging interest was  ` 4,61,000. The drawings of X and Y were  ` 1,00,000 and  ` 1,25,000 respectively.
Pass the necessary Journal entries relating to appropriation out of profit. Prepare Profit and Loss Appropriation Account and the Partners' Capital Accounts.

Profit and Loss Appropriation Account for the year ended March 31, 2023
Dr.						Cr.
Particulars			( `)	Particulars		( `)
Interest on Capital A/c:				Profit and Loss A/c (4,61,000 – 1,500)		4,59,500
X’s Capital A/c		24,000		Interest on Drawings A/c:
Y’s Capital A/c		18,000	42,000	X’s Capital A/c	5,000
X’s Capital A/c (Commission) (3,50,000 × 5%)			17,500	Y ’s Capital A/c	6,250	11,250
Salary:
X’s Capital A/c	60,000
Y’s Capital A/c	90,000		1,50,000
Reserve (WN 1)			50,000
Profit transferred to:
X’s Capital A/c	1,18,125
Y’s Capital A/c	93,125		2,11,250
			4,70,750			4,70,750

 

Partners’ Capital Accounts
Dr.							Cr.
Particulars		X ( `)	Y ( `)	Particulars	X ( `)	Y ( `)
Drawings A/c		1,00,000	1,25,000	Balance b/d	2,00,000	1,50,000
Interest on Drawings		5,000	6,250	Interest on Capital A/c	24,000	18,000
				Salary A/c	60,000	90,000
				Commission A/c	17,500
Balance c/d		3,14,625	2,19,875	P/L Appropriation A/c	1,18,125	93,125
		4,19,625	3,51,125		4,19,625	3,51,125

Working Notes:

WN1: Calculation of Reserve 

Profit before charging Interest on Drawings but after making appropriations

= 4,59,500 -`42,000 -`17,500 -`60,000- `90,000= 2,50,000
Reserve = 2,50,000×20100=` 50,000

WN2: Division of Profit

Partners	Up to ` 1,75,000	` 36,250 (Above ` 1,75,000)	Total
X	1,00,000	18,125	1,18,125
Y	75,000	18,125	93,125

 

Adjusting and Transfer Entries

(a) Interest on capital @ 10% per annum.

(b) Interest on drawings @ 6% per annum.

(c) Interest on partner's loan to the firm @ 9% per annum.

During the year, Aditi had withdrawn Rs. 60,000 and Bobby 50,000. On 1st September, 2021, Krish had given a loan of 40,000 to the firm.

Pass necessary Journal entries in the books of the firm for the following transactions for the year ended

31st March, 2023:

(i) Allowing interest on Bobby's capital.

(ii) Charging interest on Aditi's drawings.

(iii) Providing interest on Krish's loan to the firm.

Also pass transfer entries in the Profit & Loss Account/Profit & Loss Appropriation Account, as the casemay be. (CBSE 2023)

Answer:

Date	Particulars		(Dr.) Rs.	(Cr.) Rs.
	Adjusting Entries:
	Interest on Capital A/c	Dr.	40,000
	To Bobby's Capital A/c by			40,000
	(Being interest is allowed on capital)
	Interest on Capital A/c	Dr.	40,000
	To Bobby's Capital A/c			40,000
	(Being interest is allowed on capital)
	Aditi's Capital A/c	Dr.	1,800
	To Interest on Drawings A/c			1,800
	(Being interest is charged on Drawing)
	Interest on Krish's Loan A/c	Dr.	100
	To Krish's Loan A/c			100
	(Being interest is allowed on Loan)
	Transfer Entries:
	Profit & Loss Appropriation A/c	Dr.	40,000
	To Interest on Capital A/c			40,000
	(Being interest is transferred)
	Interest on Drawings A/c	Dr.	1,800
	To Profit & Loss Appropriation A/c			1,800
	(Being interest is transferred)
	Profit & Loss A/c	Dr.	2,100
	To Interest on Krish's Loan A/c			2,100
	(Being interest is transferred)

Working note:

1.     Interest on drawing for six month since date of drawing is not given

Interest on Krish's Loan = 40,000 x 9/100 x 7/12 = 2,100.