Question

Simran and Reema are partners sharing profits in the ratio of $3:2$. Their capitals as on 31st March, 2017 were $Rs.2,00,000$ each whereas Current Accounts had balances of $Rs.50,000$ and $Rs.25,000$ respectively. Interest is to be allowed @ 5% p.a. on balances in Capital Accounts. The firm earned net profit of $Rs.3,00,000$ for the year ended 31st March, 2018.
Pass the Journal entries for interest on capital and distribution of profit. Also prepare Profit and Loss Appropriation Account for the year.

Answer 1

1. Dr. Profit and Loss Appropriation A/c by $Rs.20,000$
Cr. Simran's Current A/c by $Rs.10,000$ and Reema's Current A/c by $Rs.10,000$;
2. Dr. Profit and Loss Appropriation A/c by $Rs.2,80,000$;
Cr. Simran's Current A/c by $Rs.1,68,000$ and Reema's Current A/c by $Rs.1,12,000$.

Working Notes:

1. Interest on Capital $=\frac{5}{100}\times Rs.200000=Rs.10000$ each.

2. Available profit for distribution $Rs.300000-Rs.20000=Rs.280000$

3. Profit distribution among partners :

Simran $=\frac{3}{5}\times Rs.280000=Rs.168000$

Reema $=\frac{2}{5}\times Rs.280000=Rs.112000$