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Question

P, Q and R are in a partnership and as at 1st April, 2017 their respective capitals were: ₹ 40,000, ₹ 30,000 and ₹ 30,000. Q is entitled to a salary of ₹ 6,000 and R ₹ 4,000 p.a. payable before division of profits. Interest is allowed on capital @ 5% p.a. and is not charged on drawings. Of the divisible profits, P is entitled to 50% of the first ₹ 10,000, Q to 30% and R to 20%, rest of the profit are shared equally. Profits for the year ended 31st March, 2018, after debiting partners' salaries but before charging interest on capital was ₹ 21,000 and the partners had drawn ₹ 10,000 each on account of salaries, interest and profit.
Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2018 showing the distribution of profit and the Capital Accounts of the partners.

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Solution

Profit and Loss Appropriation Account

for the year ended March 31, 2018

Dr. Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Interest on Capital:

Profit (after Salary)

21,000

P

2,000

Q

1,500

R

1,500

5,000

Profit transferred to:

P’s Capital A/c

7,000

Q’s Capital A/c

5,000

R’s Capital A/c

4,000

16,000

21,000

21,000

Partners’ Capital Accounts

Dr.

Cr.

Particulars

P

Q

R

Particulars

P

Q

R

Drawings A/c

10,000

10,000

10,000

Balance b/d

40,000

30,000

30,000

Salaries A/c

-

6,000

4,000

Interest Capital A/c

2,000

1,500

1,500

Balance c/d

39,000

32,500

29,500

P/L Appropriation A/c

7,000

5,000

4,000

49,000

32,500

29,500

49,000

42,500

39,500

Working Notes:

WN 1 Calculation of Interest on Capital

WN 2 Calculation of Profit Share of each Partner

Profit available for distribution = 21,000 − 5000 = Rs 16,000

a. Distribution of first Rs 10,000 (50%, 30% and 20%)

b. Distribution of Reaming Profit i.e. Rs 6,000 (16,000 − 10,000) equally

Therefore,


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