Question

Amit, Binita and Charu are three partners. On 1st April, 2018, their Capitals stood as: Amit ₹ 1,00,000, Binita ₹ 2,00,000 and Charu ₹ 3,00,000. It was decided that:
(a) they would receive interest on Capital @ 5% p.a.,
(b) Amit would get a salary of ₹ 10,000 per month,
(c) Binita would receive commission @ 5% of net profit after deduction of commission, and
(d) 10% of the net profit would be transferred to the General Reserve.
Before the above items were taken into account, the profit for the year ended 31st March, 2019 was ₹ 5,00,000.
Prepare Profit and Loss Appropriation Account and the Capital Accounts of the partners.

Answer 1

Profit and Loss Appropriation Account for the year ended March 31, 2019
Dr.					Cr.
Particulars			Amount (₹)	Particulars	Amount (₹)
Interest on Capital:				Profit and Loss A/c (Net Profit)	5,00,000
Amit		5,000
Binita		10,000
Charu		15,000	30,000
Salary to Amit (10,000 × 12)			1,20,000
Commission to Binita			23,810
General Reserve			50,000
Profit transferred to:
Amit’s Capital A/c	92,063
Binita’s Capital A/c	92,063
Charu’s Capital A/c	92,064		2,76,190
			33,360		33,360

Partners’ Capital Accounts
Dr.					Cr.
Particulars	Amit	Binita	Charu	Particulars		Amit	Binita	Charu
				Balance b/d		1,00,000	2,00,000	3,00,000
				Interest on Capital A/c		5,000	10,000	15,000
				Salary A/c		1,20,000	–	–
				Commission		–	23,810	–
Balance c/d	3,17,063	3,25,873	4,07,064	P/L Appropriation A/c		92,063	92,063	92,064
	3,17,063	3,25,873	4,07,064			3,17,063	3,25,873	4,07,064

Working Notes:

WN 1 Calculation of Interest on Capital

$$\begin{gathered} \mathrm{Interest}\mathrm{on}\mathrm{Amit}=1,00,000\times \frac{5}{100}=5,000 \\ \mathrm{Interest}\mathrm{on}\mathrm{Binita}=2,00,000\times \frac{5}{100}=10,000 \\ \mathrm{Interest}\mathrm{on}\mathrm{Charu}=3,00,000\times \frac{5}{100}=15,000 \end{gathered}$$

WN 2 Calculation of Commission to Binita

Commission to Binita = 5% on Net Profits after Commission

$\begin{array}{rcl}\mathrm{Commission}\mathrm{to}\mathrm{Binita}& =& \mathrm{Net}\mathrm{Profit}\times \frac{\mathrm{Rate}}{100+\mathrm{Rate}}\\ & =& 5,00,000\times \frac{5}{105}=\mathrm{Rs}23,810\end{array}$

WN 3 Calculation of Amount to be transferred to General Reserve

Amount for General Reserve = 10% of Profit

$=5,00,000\times \frac{10}{100}=\mathrm{Rs}50,000$

WN 4 Calculation of Profit Share of each Partner

Profit available for Distribution = 5,00,000 - 30,000 - 1,20,000 - 23,810 - 50,000

= Rs 2,76,190
$\mathrm{Profit}\mathrm{share}\mathrm{of}\mathrm{Amit},\mathrm{Binita}\mathrm{and}\mathrm{Charu}\mathrm{each}=2,76,190\times \frac{1}{3}=\mathrm{Rs}92,063$