Question

Akshay, Bhanu and Chakresh established a partnership firm on 01 April 2016 by investing Rs. 5,00,000, Rs. 4,00,000 and Rs. 3,00,000 as capital. Additional information: (i) Profit sharing ratio 3 : 2 : 1, (ii) 6% interest on capital, (iii) Akshay salary Rs. 1,20,000, (iv) Bhanu commission Rs. 50,000, (v) Drawings: Akshay Rs. 60,000, Bhanu Rs. 40,000, Chakresh Rs. 20,000, (vi) Interest on drawings: Akshay Rs. 2,700, Bhanu Rs. 1,800, Chakresh Rs. 900. Net Profit for the year was Rs. 3,56,600. Prepare Profit and Loss Appropriation Account.

Answer 1

Interest on capital: Akshay 30,000, Bhanu 24,000, Chakresh 18,000. Salary to Akshay is 1,20,000 and commission to Bhanu is 50,000. Interest on drawings is added back: 2,700 + 1,800 + 900 = 5,400. Adjusted profit becomes 3,56,600 + 5,400 = 3,62,000. After deducting interest on capital, salary and commission (30,000 + 24,000 + 18,000 + 1,20,000 + 50,000 = 2,42,000), the remaining profit is 1,20,000. This is distributed in ratio 3 : 2 : 1 as: Akshay 60,000; Bhanu 40,000; Chakresh 20,000. 
Profit & Loss Appropriation Account 
\[ \begin{array}{|l|r|l|r|} \hline \text{Dr.} & \text{Amount (Rs.)} & \text{Cr.} & \text{Amount (Rs.)} \\ \hline \text{To Interest on Capital:} & & \text{By Net Profit} & 3,56,600  \\ \text{Akshay} & 30,000 & \text{By Interest on Drawings} & 5,400 \\ \text{Bhanu} & 24,000 & & \\ \text{Chakresh} & 18,000 & &  \\ \text{To Salary (Akshay)} & 1,20,000 & & \\ \text{To Commission (Bhanu)} & 50,000 & &  \\ \text{To Profit transferred to:} & & & \\ \text{Akshay} & 60,000 & &  \\ \text{Bhanu} & 40,000 & & \\ \text{Chakresh} & 20,000 & & \\ \hline \text{Total} & 3,62,000 & \text{Total} & 3,62,000 \\ \hline \end{array} \]