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1.8 Double Entry Book Keeping (Section A)—ISC XII

Illustration 7.
Akhil and Bhuvi are partners sharing profits and losses in the ratio of 3 : 1. On 1st April,
2018, their capitals were: A ` 5,00,000 and B ` 3,00,000. During the year ended 31st March,
2019, they earned net profit of ` 5,00,000. The terms of partnership are:
(i) Interest on capitals is to be allowed @ 6% p.a.
(ii) Akhil will get commission @ 2% on net sales.
(iii) Bhuvi will get a salary of ` 5,000 per month.
(iv) Bhuvi will get commission of 5% on profit after deduction of interest, salary and
commission (including his own commission).
Partners’ drawings during the year were: Akhil ` 80,000 and Bhuvi ` 60,000. Net sales for
the year were ` 30,00,000. After considering the above factors, you are required to prepare
Profit and Loss Appropriation Account and Capital Accounts of the Partners.
Solution: PROFIT AND LOSS APPROPRIATION ACCOUNT
Dr. for the year ended 31st March, 2019 Cr.

Particulars ` Particulars `
To Interest on Capital A/cs: By Profit and Loss A/c 5,00,000
Akhil (` 5,00,000 × 6/100) 30,000 (Net Profit)
Bhuvi (` 3,00,000 × 6/100) 18,000 48,000
To Bhuvi’s Salary A/c (` 5,000 × 12) 60,000
To Commission A/c:
Akhil (WN 1) 60,000
Bhuvi (WN 2) 15,810 75,810
To Profit transferred to
Partners’ Capital A/cs:
Akhil (3/4) 2,37,142
Bhuvi (1/4) 79,048 3,16,190
5,00,000 5,00,000

Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.
Date Particulars Akhil Bhuvi Date Particulars Akhil Bhuvi
` ` ` `
2019 2018
March 31 To Drawings A/c 80,000 60,000 April 1 By Balance b/d 5,00,000 3,00,000
March 31 To Balance c/d 7,47,142 4,12,858 2019
March 31 By Interest on Capital A/c 30,000 18,000
March 31 By Profit and Loss
Appropriation A/c ... 60,000
(Salary)
March 31 By Commission A/c 60,000 15,810
March 31 By Profit and Loss
Appropriation A/c 2,37,142 79,048
(Profit)
8,27,142 4,72,858 8,27,142 4,72,858

Working Notes:
1. Akhil’s Commission = 2/100 × ` 30,00,000 = ` 60,000.
2. Bhuvi’s Commission:
Net profit after charging interest, salary and Akhil’s Commission but before charging Bhuvi’s commission
= ` (5,00,000 – 48,000 – 60,000 – 60,000) = ` 3,32,000
Bhuvi’s Commission after charging his own Commission = 5/105 × ` 3,32,000 = ` 15,810.