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.

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
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

$$\begin{gathered} \mathrm{Interest}\mathrm{on}A\mathrm{nita}=1,00,000\times \frac{5}{100}=5,000 \\ \mathrm{Interest}\mathrm{on}\mathrm{Biml}a=2,00,000\times \frac{5}{100}=10,000 \\ \mathrm{Interest}\mathrm{on}\mathrm{Cherry}=3,00,000\times \frac{5}{100}=15,000 \end{gathered}$$

WN 2 Calculation of Commission to Bimla

Commission to Bimla = 5% on Net Profits after Commission

$$\begin{gathered} \mathrm{Commission}\mathrm{to}\mathrm{Biml}a=\mathrm{Net}\mathrm{Profit}\times \frac{\mathrm{Rate}}{100+\mathrm{Rate}} \\ =5,00,000\times \frac{5}{105}=\mathrm{Rs}23,810 \end{gathered}$$

WN 3 Calculation of Amount to be transferred to General Reserve

Amount for General Reserve = 10% of Divisible Profit

$=3,86,190\times \frac{10}{100}=\mathrm{Rs}38,619$
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
$\mathrm{Profit}\mathrm{share}\mathrm{of}\mathrm{Anita},\mathrm{Bimla}\mathrm{and}\mathrm{Cherry}\mathrm{each}=3,47,571\times \frac{1}{3}=\mathrm{Rs}1,15,857$