Question

X and Y entered into partnership on 1st April, 2017. Their capitals as on 1st April, 2018 were ₹ 2,00,000 and ₹ 1,50,000 respectively. On 1st October, 2018, X gave ₹ 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 get 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 to be shared in the ratio of their capitals up to ₹ 1,75,000 and balance equally.
Profit for the year ended 31st March, 2019 before allowing or charging 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 out of profit. Prepare Profit and Loss Appropriation Account and the Partners' Capital Accounts.

Answer 1

Profit and Loss Appropriation Account for the year ended March 31, 2019
Dr.						Cr.
Particulars			Amount (₹)	Particulars		Amount (₹)
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

$\begin{array}{l}=4,59,500-42,000-17,500-60,000-90,000\\ =2,50,000\end{array}$
$\text{Reserve\hspace{0.17em}= 2,50,000}\times \frac{20}{100}=\text{Rs 50,000}$

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