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Question

X and Y entered into partnership on 1st April, 2017 and contributed ₹ 2,00,000 and ₹ 1,50,000 respectively as their capitals. On 1st October, 2017, X provided ₹ 50,000 as loan to the firm. As per the provisions of the partnership Deed:
(i) 20% of Profits before charging interest on Drawings but after making appropriations to be transferred to General Reserve.
(ii) Interest on capital at 12% p.a. and Interest on Drawings @ 10% p.a.
(iii) X to ger monthly salary of ₹ 5,000 and Y to get salary of ₹ 22,500 per quarter.
(iv) X is entitled to a commission of 5% on sales. Sales for the year were ₹ 3,50,000.
(v) Profit and Loss to be shared in the ratio of their capital contribution up to ₹ 1,75,000 and above ₹ 1,75,000 equally.
The profit for the year ended 31st March, 2018 before providing for any interest was ₹ 4,61,000. The drawings of X and Y were ₹ 1,00,000 and ₹ 1,25,000 respectively.
Pass the necessary Journal entries relating to appropriation our of profit and Loss Appropriation Account and the Partners' Capital Accounts.

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Solution

Profit and Loss Appropriation Account

for the year ended March 31, 2018

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Interest on Capital A/c:

Profit and Loss A/c

(4,61,000 – 1,500)

4,59,500

X

24,000

Interest on Drawings A/c:

Y

18,000

42,000

X

5,000

X’s Capital A/c (Commission) (3,50,000×5%)

17,500

Y

6,250

11,250

Salary:

X

60,000

Y

90,000

1,50,000

Reserve (WN 1)

50,000

Profit transferred to:

X’s Capital A/c

1,18,125

Y’s Capital A/c

93,125

2,11,250

4,70,750

4,70,750

Partners’ Capital Accounts

Dr. Cr.

Particulars

X

Y

Particulars

X

Y

Drawings A/c

1,00,000

1,25,000

Balance b/d

2,00,000

1,50,000

Interest on Drawings

5,000

6,250

Interest on Capital A/c

24,000

18,000

Salary A/c

60,000

90,000

Commission A/c

17,500

Balance c/d

3,14,625

2,19,875

P/L Appropriation A/c

1,18,125

93,125

4,19,625

3,51,125

4,19,625

3,51,125

Working Notes:

WN1: Calculation of Reserve

Profit before charging Interest on Drawings but after making appropriations

=4,59,50042,00017,50060,00090,000=2,50,000

Reserve = 2,50,000×20100=Rs 50,000

WN2: Division of Profit

Partners

Up to Rs 1,75,000

Rs 36,250 (Above Rs 1,75,000)

Total

X

1,00,000

18,125

1,18,125

Y

75,000

18,125

93,125


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