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

Illustration 11.
Asif and Ravi are partners in a firm, sharing profits and losses in the ratio of 3 : 2. Their
fixed capitals as on 1st April, 2016, were ` 6,00,000 and ` 4,00,000 respectively.

Their Partnership Deed provides for the following:
(a) Partners are to be allowed interest on their capital @ 10% per annum.
(b) They are to be charged interest on drawings @ 4% per annum.
(c) Asif is entitled to a salary of ` 2,000 per month.
(d) Ravi is entitled to a commission of 5% of the correct net profit of the firm before
charging such commission.
(e) Asif is entitled to a rent of ` 3,000 per month for the use of his premises by the firm.

The net profit of the firm for the year ended 31st March, 2017, before providing for any of
the above clauses was ` 4,00,000.

Both partners withdrew ` 5,000 in the beginning of every month for the entire year.
You are required to prepare Profit and Loss Appropriation Account for the year ended
31st March, 2017. (ISC 2018)
Solution:
PROFIT AND LOSS APPROPRIATION ACCOUNT
Dr. for the year ended 31st March, 2017 Cr.
Particulars ` Particulars `
To Interest on Capital A/cs: By Profit and Loss A/c (Net Profit) (WN 1) 3,64,000
Asif 60,000 By Interest on Drawing A/cs:
Ravi 40,000 1,00,000 Asif 1,300
To Asif’s Salary A/c 24,000 Ravi 1,300 2,600
To Ravi’s Commission A/c (5% of ` 3,64,000) 18,200
To Profit transferred to:
Asif’s Current A/c 1,34,640
Ravi ’s Current A/c 89,760 2,24,400
3,66,600 3,66,600

Working Notes:
1. Rent of ` 36,000 payable to Asif for the use of his premises is a charge against profit. Therefore, it is deducted
before transferring the profit to Profit and Loss Appropriation Account. Thus, Amount transferred to Profit and
Loss Appropriation Account ` 3,64,000 (i.e., ` 4,00,000 – ` 36,000).
2. Interest on Drawings:

6.5 4
Asif = ` 5,000 × 12 × ¥ = ` 1,300;
12 100
6.5 4
Ravi = ` 5,000 × 12 × ¥ = ` 1,300.
12 100