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Question

Ramesh and Suresh were partners in a firm sharing profits in the ratio of their capitals contributed on commencement of business which were Rs 80,000 and Rs 60,000 respectively. The firm started business on April 1, 2016. According to the partnership agreement, interest on capital and drawings are 12% and 10% p.a., 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, 2017 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 drawings 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.

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Solution

Profit and Loss Appropriation Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Interest on Capital

Profit and Loss

1,00,300

Ramesh

9,600

Interest on Drawings

Suresh

7,200

16,800

Ramesh

2,000

Suresh

2,500

4,500

Partners’ Salaries

Ramesh

24,000

Suresh

36,000

60,000

Profit Transferred to

Ramesh’s Capital {28,000 × (4/7)}

16,000

Suresh’s Capital {28,000 × (3/7)}

12,000

1,04,800

1,04,800

Partners’ Capital Account

Dr.

Cr.

Particulars

Ramesh

Suresh

Particulars

Ramesh

Suresh

Drawings

40,000

50,000

Cash

80,000

60,000

Interest on Drawings

2,000

2,500

Interest on Capital

9,600

7,200

Balance c/d

87,600

62,700

Partners’ Salaries

24,000

36,000

Profit & Loss Appropriation

16,000

12,000

1,29,600

1,15,200

1,29,600

1,15,200

Capital Ratio

=

Ramesh

:

Suresh

80,000

:

60,000

4

:

3


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