Ravi and Kiran commenced partnership business on 01.04.2024 with capitals of ₹ 1,50,000 and ₹ 1,00,000 respectively. Their profit sharing ratio is \(3 : 2\) respectively.
They earned a profit of ₹ 50,000 for the year, before allowing :
a) Interest on capital at 10% per annum.
b) Interest on drawings : Ravi ₹ 4,000 and Kiran ₹ 2,000.
c) Commission payable to Ravi ₹ 3,000 per annum.
d) Salary payable to Kiran ₹ 8,000 per annum.
Prepare Profit and Loss Appropriation Account for the year ended 31.03.2025.
Show Hint
Always double-check if the salary or commission is given "per month" or "per annum". Here, it is given as "per annum," so no multiplication by 12 is needed.
Step 1: Understanding the Concept:
The Profit and Loss Appropriation Account is prepared after the P\& L Account to distribute the net profit among the partners according to the provisions of the partnership deed (like interest on capital, drawings, salary, and commission).
Step 2: Detailed Explanation:
Let us calculate the various components before placing them into the account. 1. Net Profit: Given as ₹ 50,000. This will be credited to the P\& L Appropriation A/c. 2. Interest on Capital (10% p.a.):
- Ravi: \(1,50,000 \times \frac{10}{100} = \text{₹ } 15,000\)
- Kiran: \(1,00,000 \times \frac{10}{100} = \text{₹ } 10,000\)
- Total = ₹ 25,000 (Debited) 3. Interest on Drawings: Given directly. Ravi ₹ 4,000; Kiran ₹ 2,000. Total = ₹ 6,000. This is an income for the firm and will be credited. 4. Commission \& Salary:
- Ravi's Commission: ₹ 3,000 (Debited)
- Kiran's Salary: ₹ 8,000 (Debited) 5. Divisible Profit:
- Total Credit = Profit (50,000) + Int. on Drawings (6,000) = ₹ 56,000.
- Total Debit = Int. on Cap (25,000) + Comm (3,000) + Salary (8,000) = ₹ 36,000.
- Divisible Profit = ₹ 56,000 - ₹ 36,000 = ₹ 20,000.
- Share of Profit (Ratio 3:2):
Ravi = \(20,000 \times \frac{3}{5} = \text{₹ } 12,000\)
Kiran = \(20,000 \times \frac{2}{5} = \text{₹ } 8,000\)
