Question

Rakhi and Shikha are partners in a firm, with capitals of Rs 2,00,000 and Rs 3,00,000 respectively. The profit of the firm, for the year ended 2016-17 is Rs 23,200. As per the Partnership agreement, they share the profit in their capital ratio, after allowing a salary of Rs 5,000 per month to Shikha and interest on Partner’s capital at the rate of 10% p.a. During the year Rakhi withdrew Rs 7,000 and Shikha Rs 10,000 for their personal use. You are required to prepare Profit and Loss Appropriation Account and Partner’s Capital Accounts.

Answer 1

If interest on capital and Partners’ salaries will be provided even if firm involves in loss.

Profit and Loss Appropriation Account
Dr.									Cr.
Particulars			Amount Rs	Particulars					Amount Rs
Partner’s Salaries				Profit and Loss					23,200
Shikha			60,000	Loss transferred to
				Rakhi Capital			34,720
Interest on Capital				Shikha’s Capital			52,080		86,800
Rakhi		20,000
Shikha		30,000	50,000
			1,10,000						1,10,000

Partners’ Capital Account
Dr.					Cr.
Particulars	Rakhi	Shikha	Particulars	Rakhi	Shikha
Drawings	7,000	10,000	Balance b/d	2,00,000	3,00,000
Profit & Loss Appropriation	34,720	52,080	Partner’s Salaries		60,000
Balance c/d	1,78,280	3,27,920	Interest on Capital	20,000	30,000
	2,20,000	3,90,000		2,20,000	3,90,000

If interest on capital and salaries will be provided out of profit

Profit and Loss Appropriation Account
Dr.							Cr.
Particulars		Amount Rs	Particulars				Amount Rs
Partner’s Salaries			Profit and Loss				23,200
Shikha {23,200 × (6/11)}		12,655
Interest on Capital
Rakhi {23,200 × (2/11)}		4,218
Shikha {23,200 × (3/11)}		6,327
		23,200					23,200

If profit is less than the sum of distributable items, distribution shall be in proportion of items for distribution.

Partners Salaries	Ratio
Shikhar (Rs 60,000)	6	23,200 × (6/11)	12,655
Interest on Capital
Rakhi (Rs 20,000)	2	23,200 × (2/11)	4,218
Shikhar (Rs 30,000)	3	23,200 × (3/11)	6,327
	11		23,200

Partners’ Capital Account
Dr.					Cr.
Particulars	Rakhi	Shikha	Particulars	Rakhi	Shikha
Drawings	7,000	10,000	Balance b/d	2,00,000	3,00,000
			Partner’s Salaries		12,655
Balance c/d	1,97,218	3,08,972	Interest on Capital	4,218	6,327
	2,04,218	3,18,972		2,04,218	3,18,972