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Question

Anita, Bimla and Cherry are three partners. On 1st April, 2018, their Capitals stood as: Anita ₹ 1,00,000, Bimla ₹ 2,00,000 and Cherry ₹ 3,00,000. It was decided that:
(a) they would receive interest on Capital @ 5% p.a.,
(b) Anita would get a salary of ₹ 5,000 per month,
(c) Bimla would receive commission @ 5% of net profit after deduction of commission, and
(d) 10% of the net divisible 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.

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Solution

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

Anita

5,000

Bimla

10,000

Cherry

15,000

30,000

Salary to Anita (5,000 × 12)

60,000

Commission to Bimla

23,810

General Reserve

38,619

Profit transferred to:

Anita’s Capital A/c

1,15,857

Bimla’s Capital A/c

1,15,857

Cherry’s Capital A/c

1,15,857

3,47,571

5,00,000

5,00,000

Partners’ Capital Accounts

Dr.

Cr.

Particulars

Anita

Bimla

Cherry

Particulars

Anita

Bimla

Cherry

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

60,000

-

-

Commission

-

23,810

-

Balance c/d

2,80,857

3,49,667

4,30,857

P/L Appropriation A/c

1,15,857

1,15,857

1,15,857

2,80,857

3,49,667

4,30,857

2,80,857

3,49,667

4,30,857

Working Notes:

WN 1 Calculation of Interest on Capital

Interest on Anita=1,00,000×5100=5,000Interest on Bimla=2,00,000×5100=10,000Interest on Cherry=3,00,000×5100=15,000

WN 2 Calculation of Commission to Bimla

Commission to Bimla = 5% on Net Profits after Commission

Commission to Bimla = Net Profit ×Rate100+Rate =5,00,000×5105=Rs 23,810

WN 3 Calculation of Amount to be transferred to General Reserve

Amount for General Reserve = 10% of Divisible Profit

=3,86,190×10100=Rs 38,619
Divisible Profit = 5,00,000 – 30,000 – 23,810 – 60,000 = 3,86,190

WN 4 Calculation of Profit Share of each Partner

Profit available for Distribution = 5,00,000 – 30,000 – 60,000 – 23,810 – 38,619

= Rs 3,47,571
Profit share of Anita, Bimla and Cherry each=3,47,571×13= Rs 1,15,857


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