Question

Harshad and Dhiman are in partnership since 1st April, 2017. No partnership agreement was made. They contributed $Rs.4,00,000$ and $Rs.1,00,000$ respectively as capital. In addition, Harshad advanced an amount of $Rs.1,00,000$ to the firm on 1st October, 2017. Due to long illness, Harshad could not participate in business activities from 1st August to 30th September, 2017. The profit for the year ended 31st March, 2018 amounted to $Rs.1,80,000$. Dispute has arisen between Harshad and Dhiman.
Harshad Claims:
(i) He should be given interest @ 10% per annum on capital and loan;
(ii) Profit should be distributed in proportion of capital;
Dhiman Claims:
(i) Profits should be distributed equally;
(ii) He should be allowed $Rs.2,000p.m$. as remuneration for the period he managed the business in the absence of Harshad
(iii) Interest on Capital and loan should be allowed @ 6% pa.
You are required to settle the dispute between Harshad and Dhiman. Also prepare Profit and Los Appropriation Account.

Answer 1

Profit and Loss Appropriation Account

Particulars	Amount	Particulars	Amount
To interest on loan 1,00,000*6%*6/12	3,000	By net profit	1,80,000
To share of profits : Harshad 88,500 Dhiman 88,500	1,77,000
Total	1,80,000	Total	1,80,000

In the absence of partnership deed, partners are not entitled to any interest on capital contributed by them and cannot claim any salary for the work done by them towards the business.

But they are entitled to receive interest on any amount advanced by them in excess of capital contributed by them @ 6%p.a.

Profits should be distributed equally among the partners irrespective of capital contribution.

In the given situation as there is no partnership deed existing, Harshad is entitled to interest on loan amount @6%p.a. Profits should be distributed equally. Dhiman is not entitled to any remuneration and interest on capital cannot be provided.