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Question

X and Y are partners sharing profits in the ratio of 3 : 2 with capitals of ₹ 8,00,000 and ₹ 6,00,000 respectively. Interest on capital is agreed @ 5% p.a. Y is to be allowed an annual salary of ₹ 60,000 which has not been withdrawn. Profit for the year ended 31st March, 2019 before interest on capital but after charging Y's salary amounted to ₹ 2,40,000.
A provision of 5% of the profit is to be made in respect commission to the manager. Prepare an account showing the allocation profits.

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Solution

Profit and Loss Adjustment Account
for the year ended 31st March 2019

Dr.

Cr.

Particulars

Amount

(₹)

Particulars

Amount

(₹)

Manager’s Commission (3,00,000×5%)

15,000

Profit and Loss A/c
(Net Profit after Y’s salary)

2,40,000

Y’s Salary

60,000

Profit transferred to Profit and Loss

Appropriation A/c

2,85,000

3,00,000

3,00,000

Profit and Loss Appropriation Account
for the year ended 31st March 2019

Dr.

Cr.

Particulars

Amount

(₹)

Particulars

Amount

(₹)

Salary to Y

60,000

Profit and Loss Adjustment A/c

2,85,000

Interest on Capital:

(After manager’s commission)

X

40,000

Y

30,000

70,000

Profit transferred to:

X’s Capital A/c

93,000

Y’s Capital A/c

62,000

1,55,000

2,85,000

2,85,000

Working Notes:

WN 1 Calculation of Manager’s Commission

Profit for making Managers’ Commission = 2,40,000 + 60,000 (Y’s Salary) = ₹3,00,000

Manager's Commission=3,00,000×5100=15,000

WN 2 Calculation of Interest on Capital

Interest on X's Capital A/c=8,00,000×5100=40,000Interest on Y's Capital A/c=6,00,000×5100=30,000

WN 3 Calculation of Profit Share of each Partner

Profit available for distribution = 2,85,000 − 60,000 − 70,000 = ₹1,55,000

X's Share of Profit=1,55,000×35=93,000Y's Share of Profit=1,55,000×25=62,000


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