Question

X and Y are partners sharing profits and losses in the ratio of 2 : 3 with capitals ₹ 2,00,000 and ₹ 3,00,000 respectively. On 1st October, 2018, X and Y gave loans of ₹ 80,000 and ₹ 40,000 respectively to the firm. Show distribution of profits/losses for the year ended 31st March, 2019 in each of the following alternative cases:
Case 1 : If the profits before interest for the year amounted to ₹ 21,000.
Case 2 : If the profits before interest for the year amounted to ₹ 3,000.
Case 3 : If the profits before interest for the year amounted to ₹ 5,000.
Case 4 : If the loss before interest for the year amounted to ₹ 1,400.

Answer 1

Calculation of Interest on Loan

Case 1- If Profits before any interest for the year amounted to ₹ 21,000

Profit and Loss Account for the year ended March 31, 2019
Dr.				Cr.
Particulars		Amount (₹)	Particulars	Amount (₹)
Interest on X’s Loan		2,400	Profit (before interest)	21,000
Interest on Y’s Loan		1,200
Profit transferred to
X’s Capital A/c (17,400 × 2/5)	6,960
Y’s Capital A/c (17,400 × 3/5)	10,440	17,400
		21,000		21,000

Case 2- If Profits before any interest for the year amounted to ₹ 3,000

Profit and Loss Account for the year ended March 31, 2019
Dr.				Cr.
Particulars	Amount (₹)	Particulars		Amount (₹)
Interest on X’s Loan	2,400	Profit (before interest)		3,000
Interest on Y’s Loan	1,200	Loss transferred to-
		X’s Capital A/c (600 × 2/5)	240
		Y’s Capital A/c (600 × (3/5)	360	600
	3,600			3,600

Case 3- If Profits before any interest for the year amounted to ₹ 5,000

Profit and Loss Account for the year ended March 31, 2019
Dr.				Cr.
Particulars		Amount (₹)	Particulars	Amount (₹)
Interest on X’s Loan		2,400	Profit (before interest)	5,000
Interest on Y’s Loan		1,200
Profit transferred to:
X’s Capital A/c (1400 × 2/5)	560
Y’s Capital A/c (1400 × 3/5)	840	1,400
		5,000		5,000

Case 4- If Loss before any interest for the year amounted to ₹ 1,400

Profit and Loss Account for the year ended March 31, 2019
Dr.				Cr.
Particulars	Amount (₹)	Particulars		Amount (₹)
Loss (before interest)	1,400	Loss transferred to-
Interest on X’s Loan	2,400	X’s Capital A/c (5,000 × 2/5)	2,000
Interest on Y’s Loan	1,200	Y’s Capital A/c (5,000 × 3/5)	3,000	5,000
	5,000			5,000