Question

Arun and Arora were partners in a firm sharing profits in the ratio of $5:3$. Their fixed capitals on 1st April, 2010 were: Arun $Rs.60,000$ and Arora $Rs.80,000$. They agreed to allow interest on capital @ 12% p. a. and to charge on drawings @ 15% p.a. The profit of the firm for the year ended 31st March, 2011 before all above adjustments was $Rs.12,600$. The drawings made by Arun were $Rs.2,000$ and by Arora $Rs.4,000$ during the year.' Prepare Profit and Loss Appropriation Account of Arun and Arora. Show your calculations clearly. The interest on capital will be allowed even if the firm incurs a loss.

Answer 1

Calculation of Interest on Drawings

Arun Arora

Amount of Drawings 2000 4000

Interest @15%on average of 6 months 150 300

Calculation of Interest on Capitals

Arun Arora

Opening Capital 60,000 80,000

Interest on capital @`12% 7200 9600

Total interest = 16,800

Particulars	Amount	Particulars	Amount
To net loss (12,600-16800)	4200	By interest on drawings A/c Arun's current A/c 150 Arora's current A/c 300	450
		By net loss transferred to:- Arun's current A/c 2344 Arora's current A/c 1406	3750
Total	4200	Total	4200