Question

A and B are partners sharing profits in the ratio of 3 : 2 with capitals of ₹ 50,000 and ₹ 30,000 respectively. Interest on cpital is agreed @ 6% p.a. B is to be allowed an annual salary of ₹ 2,500. During the year profit prior to interest on capital but after charging B's salary amounted to ₹ 12,500. A provision of 5% of the profits if to be made in respect of Manager's Commission.

Answer 1

Profit and Loss Account for the year ended ...
Dr.			Cr.
Particulars	Amount Rs	Particulars	Amount Rs
Manager’s Commission	750	Profit before B’s Salary	15,000
(5% of Rs 15,000)		(12,500+2,500)
Profit transferred to Profit and Loss Appropriation Account	14,250
	15,000		15,000

Profit and Loss Appropriation Account for the year ended ...
Dr.					Cr.
Particulars			Amount Rs	Particulars	Amount Rs
Interest on Capital A/c:				Profit and Loss A/c	14,250
A		3,000
B		1,800	4,800
B’s Salary			2,500
Profit transferred to:
A’s Capital A/c	4,170
B’s Capital A/c	2,780		6,950
			14,250		14,250

Partners’ Capital Accounts
Dr.						Cr.
Particulars	A	B	Particulars	A	B
Balance c/d	57,170	37,080	Balance b/d	50,000	30,000
			Interest on Capital A/c	3,000	1,800
			Salary A/c		2,500
			P/L Appropriation A/c	4,170	2,780
	57,170	37,080		57,170	37,080

Working Notes:

WN 1 Calculation of Managers’ Commission

1. Managers’ Commission = 5% on Net Profit (before Salary)

Profit before Salary = Profit after Salary + Salary = 12,500 + 2500 = Rs 15,000

WN 2 Calculation of Interest on Capital

WN 3 Calculation of Profit Share of each Partner

Profit available for distribution = 12,500 − 750 − 3,000 − 1,800 = Rs 6,950

Profit sharing ratio = 3 : 2