Question

A and B are partners sharing profits in the ratio of 3:2, with Capitals of Rs 5,00,000 and 3,00,000 respectively. Interest on Capital is agreed at 6% p.a. B is to be allowed an annual salary of Rs 60,000. During the year 2016-17, the profits prior to the calculation of interest on capital but after charging B's salary amounted to Rs 1,80,000. A provision of 5% of the profit is to be made in respect of commission to the Manager.

Prepare Profit and Loss Appropriation account showing the distribution of profit and the partner's capital accounts for the year ending March 31, 2017.

Answer 1

PROFIT AND LOSS ACCOUNT

Dr. for the year ended March 31, 2017 Cr.

$\begin{array}{cccc}\text{Particulars}& \text{Rs}& \text{Particulars}& \text{Rs}\\ \text{Manager's Commission}& & \text{Profit for the year}& \\ \text{(5\% of Rs 2,40,000)}& 12,000& \text{(before B' s Salary)}& \\ \text{Net Profit Transferred to Profit}& & (Rs1,80,000+Rs60,000)& 2,40,000\\ \text{\& Loss Appropriation A/c}& 2,28,000& & \\ & \underset{–}{\overline{2,40,000}}& & \underset{–}{\overline{2,40,000}}\end{array}$

PROFIT AND LOSS APPROPRIATION ACCOUNT

Dr. for the year ended March 31, 2017 Cr.

$\begin{array}{cccc}\text{Particulars}& \text{Rs}& \text{Particulars}& \text{Rs}\\ \text{B's Salary}& 60,000& \text{Profit \& Loss A/c}& 2,28,000\\ \text{Interest on Capitals:}& & & \\ A30,000& & & \\ B\underset{–}{18,000}& 48,000& & \\ \text{Profits transferred to Capital}& & & \\ \text{Accounts}A72,000& & & \\ B\underset{–}{48,000}& \underset{–}{1,20,000}& & \\ & \underset{–}{2,28,000}& & \underset{–}{\overline{2,28,000}}\end{array}$

Dr. PARTNER'S CAPITAL ACCOUNTS Cr.

$\begin{array}{cccccccc}\text{Date}& \text{Particulars}& A& B& \text{Date}& \text{Particulars}& A& B\\ 2017& & Rs& Rs& 2016& & Rs& Rs\\ \text{March 31}& \text{Balance}& & & \text{April 1}& \text{Balance}& & \\ & c/d& 6,02,000& 4,26,000& & b/d& 5,00,000& 3,00,000\\ & & & & 2017& & & \\ & & & & \text{March 31}& \text{Salary}& -& 60,000\\ & & & & \text{March 31}& \text{Interest}& & \\ & & & & & \text{on Capital}& 30,000& 18,000\\ & & & & \text{March 31}& \text{Profit \&}& & \\ & & & & & \text{Loss}& & \\ & & & & & \text{Appr. A/c}& & \\ & & & & & \text{(Share of}& & \\ & & & & & \text{Profit)}& 72,000& 48,000\\ & & \underset{–}{\overline{6,02,000}}& \underset{–}{\overline{4,26,000}}& & & \underset{–}{\overline{6,02,000}}& \underset{–}{\overline{4,26,000}}\end{array}$

Note:(1) In the absence of information, manager's commission will be calculated on profit before any adjustment is made according to partnership deed, i.e., before adjustments in respect of partner's salary, interest on capital etc.

(2) Manager's Commission is a charge against the profits and not an appropriation of profit. Hence it is debited to Profit & Loss Account and not Profit and Loss Appropriation Account.