Question

On 1-04-2013 Jay and Vijay, entered into partnership for supplying laboratory equipment to government schools situated in remote and backward areas. They contributed capital of Rs 80,000 and Rs 50,000 respectively and agreed to share the profit in the ratio of 3:2. The partnership deed provided that interest on capital shall be allowed @9% per annum. During the year the firm earned a profit Rs 7,800.

Showing your calculations clearly, prepare Profit and Loss Appropriation Account of Jay and Vijay for the year ended 31-3-2014.

Answer 1

PROFIT AND LOSS APPROPRIATION ACCOUNT OF JAY AND VIJAY

for the year ended on 31st March, 2014

Dr Cr
$\begin{array}{cccc}\text{Particulars}& \text{Amout}& \text{Particulars}& \text{Amount}\\ & \text{(Rs)}& & \text{(Rs)}\\ \text{Interest on Capital}& & \text{Profit and Loss A/c (Net Profit)}& 7,800\\ \text{Jay's Capital A/c}(7,800\times 8/13)& 4,800& & \\ \text{Vijay's Capital A/c}(7,800\times 5/13)& \underset{–}{3,000}& & \\ & 7,800& & \overline{7,800}\end{array}$

$\begin{array}{cc}& \\ \text{Working Notes:}& \\ \text{Calculation of interest on capital :}& \text{Amount(Rs))}\\ \text{(a)Interest on Jay's Capital =}80,000\times 9/100& 7,200\\ \text{(b)Interest on Vijay's Capital =}50,000\times 9/100& \underset{–}{4,500}\\ & \underset{–}{11,700}\end{array}$

The available profit is Rs 7,800. Since the profit is less than the amount of interest, the available profit will be distributed between the partners in the ratio of interest on their capital i.e., 7200: 4500 or 8:5.