Page 23 - ISCDEBK-12

Partnership Accounts—Fundamentals 1.13

Illustration 12.
A, B and C are partners sharing profits and losses in the ratio of 4 : 3 : 2. Their Capital
Account balances as on 31st March, 2016 are as follows:
A—` 4,25,000 (Cr.); B—` 2,75,000 (Cr.); C—` 3,05,000 (Cr.).
Following further information is provided:
(i) ` 55,600 is to be transferred to General Reserve.
(ii) A, B and C are paid monthly salary in cash amounting to ` 6,000; ` 4,000 and ` 4,500
respectively.
(iii) Partners are allowed interest on their closing capital balances at 6% p.a. and are
charged interest on drawings @ 8% p.a.
(iv) A and B are entitled to commission at 8% and 10% respectively on the Net profit
before making any appropriation.
(v) C is entitled to commission at 15% of the Net profit before charging Interest on
Drawings but after making all other appropriations.
(vi) During the year, A withdrew ` 5,000 in the beginning of every month, B—` 4,375 at
the end of every month and C—` 3,125 in the middle of every month.
(vii) Firm’s Accountant is entitled to a salary of ` 5,000 per month and a commission of
12% of Net profit after charging such commission.
Net profit of the firm for the year ended 31st March, 2016, before providing for any
of the above adjustments was ` 6,90,000. You are required to prepare Profit and Loss
Appropriation Account for the year ended on 31st March, 2016.
Solution: PROFIT AND LOSS ACCOUNT
Dr. for the year ended 31st March, 2016 Cr.
Particulars ` Particulars `
To Accountant’s Salary (Note 1) 60,000 By Net Profit b/d 6,90,000
(` 5,000 × 12)
To Accountant’s Commission (Note1) 67,500
12/112 (` 6,90,000 – ` 60,000)
To Net Profit trfd. to P and L Appropriation A/c 5,62,500
6,90,000 6,90,000

Dr. PROFIT AND LOSS APPROPRIATION ACCOUNT for the year ended 31st March, 2016 Cr.
Particulars ` Particulars `
To General Reserve A/c 55,600 By Net Profit (trfd. from Profit and Loss A/c) 5,62,500
To Partners’ Salary: By Interest on Drawings:
A (` 6,000 × 12) 72,000 A (` 60,000 × 8/100 × 6.5/12) 2,600
B (` 4,000 × 12) 48,000 B (` 52,500 × 8/100 × 5.5/12) 1,925
C (` 4,500 × 12) 54,000 1,74,000 C (` 37,500 × 8/100 × 6/12) 1,500 6,025
To Interest on Capital A/cs:
A (` 4,25,000 × 6/100) 25,500
B (` 2,75,000 × 6/100) 16,500
C (` 3,05,000 × 6/100) 18,300 60,300
To Partners’ Commission:
A (` 5,62,500 × 8/100) 45,000
B (` 5,62,500 × 10/100) 56,250
C (Note 2) 25,703 1,26,953
To Net Profit transferred to Capital A/cs:
A (` 1,51,672 × 4/9) 67,410
B (` 1,51,672 × 3/9) 50,557
C (` 1,51,672 × 2/9) 33,705 1,51,672
5,68,525 5,68,525