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 Interest on capital is agreed @ 5% p.a. Y is to be allowed an annual salary of ₹ 60,000 which has not been withdrawn.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.

Answer 1

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

$\mathrm{Manager}\text{'}\mathrm{s}\mathrm{Commission}=₹\left(3,00,000\times \frac{5}{100}\right)=₹15,000$

WN 2 Calculation of Interest on Capital

$$\begin{gathered} \mathrm{Interest}\mathrm{on}\mathrm{X}\text{'}\mathrm{s}\mathrm{Capital}\mathrm{A}/\mathrm{c}=₹\left(8,00,000\times \frac{5}{100}\right)=₹40,000 \\ \mathrm{Interest}\mathrm{on}\mathrm{Y}\text{'}\mathrm{s}\mathrm{Capital}\mathrm{A}/\mathrm{c}=₹\left(6,00,000\times \frac{5}{100}\right)=₹30,000 \end{gathered}$$

WN 3 Calculation of Profit Share of each Partner

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

$$\begin{gathered} X\text{'}s\mathrm{Share}\mathrm{of}\mathrm{Profit}=₹\left(1,55,000\times \frac{3}{5}\right)=₹93,000 \\ Y\text{'}s\mathrm{Share}\mathrm{of}\mathrm{Profit}=₹\left(1,55,000\times \frac{2}{5}\right)=₹62,000 \end{gathered}$$