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Question

X and Y entered into partnership On 1st April, 2017 X and Y contributed Rs. 2,00,000 and Rs. 1,50,000 respectively as their capitals. On 1st October, 2017, X provided Rs. 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% pa. and Interest on Drawings @ 10% p.a.
(iii) X get Monthly salary of Rs. 5,000 and Y to get salary of Rs. 22,500 per quarter.
(iv) X is entitled to a commission of 5% on sales. Sales for the year was Rs. 3,50,000.
(v) Profit and Loss to be shared in the ratio of their capital contribirtion up to Rs. 1,75,000 and above Rs. 1,75,000 equally.
The profit for the year ended 31st March, 2018, before 'Providing for any interest was Rs. 4,61,000. The drawings of X and Y were Rs. 1,00,000 and Rs. 1,25,000 respectively. Pass the necessary Journal entries relating to appropriation out of profits. Prepare Profit and Loss Appropriation Account and the Partners' Capital Accounts.

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Solution

Partners Capital A/c
Dr X Y X Y
To drawings 100000125000By Balance b/d200000 150000
To interest on
drawings
10000 12500By Interest on capital24000 18000
By Salary 6000090000
By Commission 17500Nil
By profits 124350 99,350
To balance c/d 315850 219850
Profit distribution up to 1,75,000 in the ratio of 4:3 i.e capital ratio and above equally distributed.

Profit And Loss Appropriation Account
Notes :

To interest on Capital
X= 2,00,000*12%
= 24,000
Y= 1,50,000*12%
= 18,000
42000 By net profit 4,61,000
X's salary = 5,000*12
= 60,000
Y's salary = 22,500*4
= 90,000
150000 By interest on drawings
X=1,00,000*10%
= 10,000
Y = 1,25,000*10%
= 12,500
X's Commission
(3,50,000*5%)
17,500
To General reserve
(Notes)
50,300
Share of profits
Up to 1,75,000
X = 1,00,000
Y=75,000
Remaining 48,700
X= 24,350
Y=24,350
Total 4,85,500 Total 4,83,500
Notes :
General Reserve transfer = 20% of Profits before charging Interest on Drawings but after making appropriations
Profit for the year Rs. 461000
Less : Interest on capital (42000)
Less : X's commission (17500)
Less : Salary of X & Y (150000)
Profit available for transfer of general reserve 251500
Profit transfer to general reserve = 20% of Rs. 251500 = Rs. 50300.

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