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Interest on Drawings-Withdrawn in the Beginning of Every Month

Which of the ...

Question

Which of the following appear in the Profit & Loss Appropriation Account?

A

Salary/Commission to a partner.

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B

Salary/Commission to a manager.

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C

Interest on capital of a partner.

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D

Interest on loan of a partner.

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E

A & C

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Solution

The correct option is E A & C
A AND C.
A Profit and loss Appropriation account is an account which is prepared after profit and loss account and is usually prepared by partnership firms for distribution/allocation of profit earned by the firm to partners. Only items relating to partners will be entered in Profit and loss Appropriation like interest on capital, profit, interest on drawings, salary/commission to partners.

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Q. To which account salary and commission to partners and interest on capital be debited? Why?

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Q. X and Y are partners in a firm sharing profits in the ratio of 3 : 2. The have a manager, Z, who gets ₹ 10,000 p.m. salary plus commission of 5% of the profit after charging his salary and commission, Now, they decide to admit Z as a partner, giving him 1/5th share in the profits of the firm. Any excess amount which Z receives as a partner (over his salary and commission) will be borne by X. The profit for the year ended 31st March, 2018 amounted to ₹ 8,40,000 after charging Z's salary. Prepare Profit and Loss Appropriation Account showing the division of profit for the year.

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