Question

Sajal and Kajal are partners sharing profits and losses in the ratio of 2 : 1. On 1st April, 2018 their Capitals were: Sajal – ₹ 50,000 and Kajal – ₹ 40,000.
Prepare Profit and Loss Appropriation Account and the Partners' Capital Accounts at the end of the year after considering the following items:
(a) Interest on Capital is to be allowed @ 5% p.a.
(b) Interest on the loan advanced by Kajal for the whole year, the amount of loan being ₹ 30,000.
(c) Interest on partners' drawings @ 6% p.a. Drawings: Sajal ₹ 10,000 and Kajal ₹ 8,000.
(d) 10% of the divisible profit is to be transferred to Reserve.

Net profit for the year ended 31st March, 2019 is ₹ 68,460.
Note: Net profit means net profit after debit of interest on loan by the partner.

Answer 1

Profit and Loss Account for the year ended 31st March, 2019
Dr.			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
Interest on Kajal’s loan@ 6% p.a.	1,800	Profit	70,260
Profit transferred to P/L Appropriation A/c	68,460
	70,260		70,260

Profit and Loss Appropriation Account for the year ended 31st March, 2019
Dr.						Cr.
Particulars			Amount (₹)	Particulars		Amount (₹)
Interest on Capital A/c:				Profit and Loss A/c		68,460
Sajal		2,500
Kajal		2,000	4,500	Interest on Drawings A/c:
				Sajal	300
Reserve			6,450	Kajal	240	540
Profit transferred to:
Sajal’s Capital A/c	38,700
Kajal’s Capital A/c	19,350		58,050
			69,000			69,000

Partners’ Capital Accounts
Dr.			Cr.
Particulars	Sajal (₹)	Kajal (₹)		Particulars	Sajal (₹)	Kajal (₹)
Drawings A/c	10,000	8,000		Balance b/d	50,000	40,000
Interest on Drawings A/c	300	240		Interest on Capital A/c	2,500	2,000
				P&L Appropriation A/c	38,700	19,350
Balance c/d	80,900	53,110
	91,200	61,350			91,200	61,350

Working Notes:

WN 1 Calculation of Interest on Capital

WN 2 Calculation of Interest on Drawings

WN 3 Calculation of Amount to be transferred to Reserve

Amount for Reserve = 10% of Divisible Profit

Divisible Profit = Profit + Interest on Drawings − Interest on Capital

= 68,460 + 540 − 4,500 = Rs 64,500

WN 4 Calculation of Profit Share of each Partner

Profit available for Distribution = 68,460 + 540 − 4,500 − 6,450 = Rs 58,050

Profit sharing ratio = 2 : 1