Question

X, Y and Z are partners in a firm sharing profits in 2 : 2 : 1 ratio. The fixed capitals of the partners were : X ₹5,00,000; Y ₹ 5,00,000 and Z ₹ 2,50,000 respectively. The Partnership Deed provides that interest on capital is to be allowed @ 10% p.a. Z is to be allowed a salary of ₹ 2,000 per month. The profit of the firm for the year ended 31st March, 2018 after debiting Z's salary was ₹ 4,00,000.
Prepare Profit and Loss Appropriation Account.

Answer 1

Profit and Loss Appropriation Account for the year ended 31st March 2018
Dr.					Cr.
Particulars			Amount Rs	Particulars	Amount Rs
Interest on Capital:				Profit and Loss A/c (Net Profit after Z’s salary)	4,00,000
X		50,000
Y		50,000
Z		25,000	1,25000
Profit transferred to:
X’s Capital A/c	1,10,000
Y’s Capital A/c	1,10,000
Z’s Capital A/c	55,000		2,75,000
			4,00,000		4,00,000

Working Notes:

WN 1 Salary to Z has not been debited to Profit and Loss Appropriation Account. This is because Profit of Rs 4,00,000 is given after adjusting the Z’s salary.

WN 2 Calculation of Interest on Capital

WN 3 Calculation of Profit Share of each Partner

Divisible of Profit after Interest on Capital = Rs 4,00,000 − Rs 1,25,000 = Rs 2,75,000

Profit sharing ratio = 2 : 2 : 1