Question

A, B and C were partners in a firm having capitals of Rs. 50,000; Rs. 50,000 and Rs.1,00,000 respectively. Their Current Account balances were. A: Rs. 10,000; B: Rs. 5,000 and C: Rs. 2,000 (Dr.). According to the Partnership Deed the partners were entitled to an interest on Capital @ 10% p.a. C being the working partner was also entitled to a salary of Rs.12,000 p.a. The profits were to be divided as:
(a) The first Rs. 20,000 in proportion to their capitals.
(b) Next Rs. 30,000 in the ratio of 5 :3 : 2.
(c) Remaining profits to be shared equally.
The firm earned net profit of Rs.1,72,000 before charging any of the above items.
Prepare Profit and Loss Appropriation Account and pass necessary Journal entry for the appropriation of profits.

Answer 1

PROFIT AND LOSS APPROPRIATION A/C

(for the year ended 31st March, 2018)
Dr. Cr.

Particulars	Amount	Particulars	Amount
To Salary to C	12000	By Net Profit a/c	172000
To Interest on Capital a/c - A - B - C	5000 5000 10000
To Profit transferred to: - A's Current a/c - B's Current a/c - C's Current a/c	50000 44000 46000
	172000		172000

JOURNAL

1. Interest on Capital a/c..... Dr. 20000

To A's Current a/c 5000

To B's Current a/c 5000

To C's Current a/c 10000

(Being interest on capital transferred to the partner's current accounts)

2. Salary a/c.... Dr. 12000

To C's Current a/c 12000

(Being salary provided to C)

3. Profit and Loss Appropriation a/c.... Dr. 140000

To A's Current a/c 50000

To B's Current a/c 44000

To C's Current a/c 46000

(Being profit distributed among the partners)

Working Note:

Distribution of Profit:

Profit available for distribution= 172000-12000-20000

= 140000

A's share= [20000*1/4] + [30000*5/10] + [90000*1/3]

= 5000+15000+30000

= 50000

B's share= [20000*1/4] + [30000*3/10] + [90000*1/3]

= 5000+9000+30000

= 44000

C's share= [20000*2/4] + [30000*2/10] + [90000*1/3]

= 10000+6000+30000

= 46000