Question

The Partnership agreement between Maneesh and Girish provides that

(i) Profits will be shared equally;

(ii) Maneesh will be allowed a salary of Rs 400 pm;

(iii) Girish who manages the sales department will be allowed a commission equal to 10% of the net profits, after allowing Maneesh's salary;

(iv) 7% interest will be allowed on partner's fixed capital;

(v) 5% interest will be charged on partner's annual drawings;

(vi) The fixed capitals of Maneesh and Girish are Rs 1,00,000 and Rs 80,000 respectively. Their annual drawings were Rs 16,000 and Rs 14,000 respectively. The net profit for the year ending March 31, 2006 amounted to Rs 40,000;

Prepare firm's profit and toss appropriation account.

Answer 1

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

$\begin{array}{cccccc}\text{Particulars}& & \text{Amt. (Rs)}& \text{Particulars}& & \text{Amt. (Rs)}\\ \text{Maneesh's Salary}& & 4,800& \text{Profit and Loss}& & 40,000\\ \text{Girish's Commision}& & & \text{Interest on}& & \\ (40,000-4800)\times \left(\frac{10}{100}\right)& & 3,520& \text{Drawings}& & \\ \text{Interest on capital}& & & \text{Maneesh}& 800& \\ \text{Maneesh}& 7,000& & \text{Girish}& \underset{–}{700}& 1,500\\ \text{Girish}& \underset{–}{5,600}& 12,600& & & \\ \text{Profit Transferred to}& & & & & \\ \text{Maneesh's}& 10,290& & & & \\ \text{Current A/c}& & & & & \\ \text{Girish's Current A/c}& 10,290& 20,580& & & \\ & & \underset{–}{\overline{41,500}}& & & \underset{–}{\overline{41,500}}\end{array}$

Note In case rate of interest on drawings would have been at pa then it was to be calculated for average 6 months.

As capitals are fixed, hence profit is transferred to the current account.