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 capital 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 is to be made in respect of Manager's Commission.

Answer 1

Profit and Loss Account for the year ended ...
Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
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 (₹)	Particulars	Amount (₹)
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