Question

Ramesh and Suresh were partners in a firm sharing profits in the ratio of their capitals contributed on commencement business which were Rs 80,000 and Rs 60,000 respectively. The firm started business on April 1, 2005. According to the partnership agreement, interest on capital and drawings are 12% and 10% pa respectively. Ramesh and Suresh are to get a monthly salary of Rs 2,000 and Rs 3,000 respectively.

The profits for year ended March 31, 2006 before making above appropriations was Rs 1,00,300. The drawings of Ramesh and Suresh were Rs 40,000 and Rs 50,000 respectively. Interest on amounted to Rs 2,000 for Ramesh and Rs 2,500 for Suresh. Prepare profit and loss appropriation account and partners' capital accounts, assuming that their capitals are fluctuating.

Answer 1

$\begin{array}{cccccccccccccccc}\text{Dr}& & & & & & \text{Profit and Loss Appropriation Account}& & & & & & & & & \text{Cr}\end{array}$

$\begin{array}{cccccc}\text{Particulars}& & \text{Amt. (Rs)}& \text{Particulars}& & \text{Amt. (Rs)}\\ \text{Interest on Capital}& & & \text{Profit and Loss}& & 1,00,300\\ \text{Ramesh's Capital A/c}& 9,600& & \text{Interest on Drawings}& & \\ \text{Suresh's Capital A/c}& \underset{–}{7,200}& 16,800& \text{Ramesh's Capital A/c}& 2,000& \\ \text{Partner's Salary}& & & \text{Suresh's Capital A/c}& \underset{–}{2,500}& 4,500\\ \text{Ramesh's Capital A/c}& 24,000& & & & \\ \text{Suresh's Capital A/c}& \underset{–}{36,000}& 60,000& & & \\ \text{Profit Transferred to}& & & & & \\ \text{Ramesh's Capital A/c}& 16,000& & & & \\ \text{Suresh's Capital A/c}& \underset{–}{12,000}& \underset{–}{28,000}& & & \\ & & \underset{–}{\overline{1,04,800}}& & & \underset{–}{\overline{1,04,800}}\end{array}$

$\begin{array}{cccccccccccccccc}\text{Dr}& & & & & & \text{Partner's Capital Account}& & & & & & & & & \text{Cr}\end{array}$

$\begin{array}{cccccc}\text{Particulars}& \text{Ramesh}& \text{Suresh}& \text{Particulars}& \text{Ramesh}& \text{Suresh}\\ \text{Drawings}& 40,000& 50,000& \text{Cash}& 80,000& 60,000\\ \text{Interest On}& & & \text{Interest on}& & \\ \text{Drawings}& 2,000& 2,500& \text{Capital}& 9,600& 7,200\\ & & & \text{Partner's Salary}& 24,000& 36,000\\ & & & \text{Profit and Loss}& 16,000& 12,000\\ & & & \text{Appropriation A/c}& & \\ \text{Balance c/d}& 87,600& 62,700& & & \\ & \overline{\underset{–}{1,29,600}}& \overline{\underset{–}{1,15,200}}& & \overline{\underset{–}{1,29,600}}& \overline{\underset{–}{1,15,200}}\end{array}$

Note: Word 'Cash' is used with capital instead of Balance b/d as the business started this year.

Profit of Ramesh $=28,000\times \frac{4}{7}=16,000$ and

Suresh $=28,000\times \frac{3}{7}=12,000$