Question

$X$ and $Y$ are partners sharing profits and losses in the ratio of $7:3$. Their Capital Accounts as at 1st April, 2017 stood at $X-Rs.5,00,000;Y-Rs.4,00,000$. The partners are allowed interest on capital @ $5\%$ p.a. The drawings of the partners during the year ended 31st March, 2018 amounted to $Rs.72,000$ and $Rs.50,000$ respectively. The profit for the year before allowing interest on capital and salary to $Y$ @ $Rs.5,000$ per month amounted to $Rs.8,00,000$. $10\%$ of the net profit is to be set aside as General Reserve.
Pass the Journal entries for Appropriation. Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2018, and Capital and Current Accounts of the partners.

Answer 1

Journal Entries are as follows:-

Profit and loss A/c Dr. 8,00,000

To P&L Appropriation A/c 8,00,000

(Being profit transferred )

Interest on capital A/c Dr. 45,000

To X's current A/c 25000

To Y's current A/c 20000

(Being interest on capital allowed @5%)

Y's salary A/c Dr. 60,000

To Y's current A/c 60,000

(Being salary allowed)

Profit and loss Appropriation A/c Dr. 1,05,000

To Interest on capital A/c 45,000

To Y's salary A/c 60,000

(Being interest on capital and salary transferred to p&l app A/c)

X's drawings A/c Dr. 72,000

Y's drawings A/c Dr. 50,000

To Bank A/c 1,22,000

(Being drawings made by partners)

Profit and Loss Appropriation A/c Dr. 6,95,000

To X'S current A/c 4,30,500

To Y's current A/c 1,84,500

To General Reserve 80,000

(Being share of profit and amount transferred from p&l App A/c)

PROFIT AND LOSS APPROPRIATION ACCOUNT

Particulars	Amount	Particulars	Amount
To interest on capital X-5,00,000*5%=25000 Y-4,00,000*5%=20,000	45,000	By Net profit	8,00,000
To Y's salary	60,000
To general reserve (8,00,000*10%)	80,000
To profit transferred to X's current A/C-4,30,500 y'S current A/c- 1,84,500	6,15,000
Total	8,00,000	Total	8,00,000

PARTNERS CAPITAL ACCOUNT

Particulars	X	Y	Particulars	X	Y
To bl c/d	5,00,000	4,00,000	By bal b/d	5,00,000	4,00,000
Total	5,00,000	4,00,000	Total	5,00,000	4,00,000

PARTNERS CURRENT ACCOUNT

Particulars	X	Y	Particulars	X	Y
To drawings	72,000	50,000	By interest on capital	25,000	20,000
			By Y's salary		60,000
By bal c/d	3,83,500	2,14,500	By P&L App A/c	4,30,500	1,84,500
Total	4,55,500	2,64,500	Total	4,55,500	2,64,500