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.

Answer 1

Partners Capital A/c

Dr X Y X Y

To drawings	100000	125000	By Balance b/d	200000	150000
To interest on drawings	10000	12500	By Interest on capital	24000	18000
			By Salary	60000	90000
			By Commission	17500	Nil
			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.