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Partnership Accounts—Fundamentals 1.9

Illustration 8.
On 1st April, 2019, Precious, Noble and Perfect entered into partnership with capitals of
` 60,000; ` 50,000 and ` 30,000 respectively.
Perfect advanced ` 10,000 as loan to the partnership on 1st October, 2019. The Partnership
Deed contained the following clauses:
(i) Interest on capitals @ 6% p.a.
(ii) Interest on drawings @ 6% p.a. Each drew ` 4,000 at the end of each quarter
commencing from 30th June, 2019.
(iii) Working partners Precious and Noble to get salaries of ` 200 and ` 300 per month.
(iv) Interest on loan was given to Perfect @ 6% p.a.
(v) Profits and losses are to be shared in the ratio of 4 : 2 : 1 up to ` 70,000 and above
` 70,000 equally.
Net profit of the firm for the year ended 31st March, 2020 (before above adjustments)
was ` 1,11,000.
Prepare Profit and Loss Appropriation Account and Personal Accounts of the Partners
assuming capitals to be fixed. (ISC 1996, Modified)
Solution: PROFIT AND LOSS APPROPRIATION ACCOUNT
Dr. for the year ended 31st March, 2020 Cr.
Particulars ` Particulars `
To Interest on Capital A/cs: By Profit and Loss A/c 1,10,700
Precious 3,600 (` 1,11,000 – ` 300
Noble 3,000 being Interest on Loan by Perfect)
Perfect 1,800 8,400 By Interest on Drawings A/cs (Note 1):
To Partners’ Salary A/cs: Precious 360
Precious 2,400 Noble 360
Noble 3,600 Perfect 360 1,080
To Balance c/d 97,380
1,11,780 1,11,780
To Profit trfd. to Current A/cs: By Balance b/d 97,380
First ` 70,000:
Precious (4/7) 40,000
Noble (2/7) 20,000
Perfect (1/7) 10,000
Next ` 27,380 (i.e., ` 97,380 – ` 70,000):
Precious (1/3) 9,127
Noble (1/3) 9,127
Perfect (1/3) 9,126
97,380 97,380

Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.
Particulars Precious Noble Perfect Particulars Precious Noble Perfect
` ` ` ` ` `
To Balance c/d 60,000 50,000 30,000 By Bank A/c 60,000 50,000 30,000