Question

A and B are partners from 1st April, 2018, without a Partnership Deed and they introduced capitals of ₹ 35,000 and ₹ 20,000 respectively. On 1st October, 2018, A advanced loan of ₹ 8,000 to the firm without any agreement as to interest. The profit and Loss Account for the year ended 31st March, 2019 shows a profit of ₹ 15,000 but the partners cannot agree on payment of interest and on the basis of division of profits.
You are required to divide the profits between them giving reasons for your method.

Answer 1

Profit and Loss Account for the year ended March 31, 2019
Dr.				Cr.
Particulars		Amount (₹)	Particulars	Amount (₹)
Interest on A’s Loan		240	Profit (before Interest)	15,000
Profit transferred to:
A’s Capital A/c	7,380
B’s Capital A/c	7,380	14,760
		15,000		15,000

Working Notes:

WN 1 Calculation of Interest on Loan

As per the Partnership Act, if there is no partnership agreement regarding rate of interest on loan, it is provided at 6% p.a.

Amount of Loan = Rs 8,000

Time Period (from October 01 to March 31) = 6 months

WN 2 Calculation of Profit Share of each Partner

In the absence of partnership deed, profits of a firm are distributed equally among all the partners.

Profit after Interest on A’s loan = 15,000 − 240 = Rs 14,760