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Partnership Accounts—Fundamentals 1.15

Illustration 14.
A, B and C are partners in a firm. According to the Partnership Deed, the partners
are entitled to draw ` 700 per month. On the 1st day of every month, A, B and
C draw ` 700, ` 600 and ` 500 respectively. Interest on capitals and interest on
drawings are fixed @ 8% and 10% respectively. Profit during the year 2017–18 was
` 75,500, out of which a sum of ` 20,000 is to be transferred to General Reserve.
B and C are entitled to receive salary of ` 3,000 and ` 4,500 p.a. respectively and
A is entitled to receive commission @ 10% on the net distributable profit after charging
such commission. On 1st April, 2017, the balances of their Capital Accounts were
` 50,000; ` 40,000 and ` 35,000 respectively.
You are required to show Profit and Loss Appropriation Account for the year ended
31st March, 2018 and Capital Accounts of Partners in the books of the firm.
Solution: PROFIT AND LOSS APPROPRIATION ACCOUNT
Dr. for the year ended 31st March, 2018 Cr.
Particulars ` Particulars `
To General Reserve A/c 20,000 By Profit as per Profit and Loss A/c 75,500
To Interest on Capital A/c: By Interest on Drawings A/c:
A 4,000 A (` 8,400 × 10/100) 840
B 3,200 B (` 7,200 × 10/100) 720
C 2,800 10,000 C (` 6,000 × 10/100) 600 2,160
To Partners’ Salaries A/c:
B 3,000
C 4,500 7,500
To A’s Capital A/c (Commission) 3,651
To Profit transferred to Capital A/cs:
A 12,170
B 12,170
C 12,169 36,509
77,660 77,660

Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.
Particulars A B C Particulars A B C
` ` ` ` ` `
To Drawings A/c 8,400 7,200 6,000 By Balance b/d 50,000 40,000 35,000
To Interest on By Interest on Capital A/c 4,000 3,200 2,800
Drawings A/c 840 720 600 By Partners’ Salaries A/c ... 3,000 4,500
To Balance c/d 60,581 50,450 47,869 By Profit and Loss
Appropriation A/c 3,651 ... ...
(Commission)
By Profit and Loss
Appropriation A/c 12,170 12,170 12,169
69,821 58,370 54,469 69,821 58,370 54,469

Working Notes:
1. Interest on Capitals and Interest on Drawings are fixed @ 8% and 10% (and not 8% p.a. and 10% p.a.).
Therefore, the time factor is ignored.
2. Unless otherwise stated in the Partnership Deed, all partners are deemed to be equal partners. Thus,
profit of the year has been divided among partners equally.
3. Commission payable to A is calculated as:
A’s Commission after charging his own Commission
10
= × (` 75,500 + ` 2,160 – ` 10,000 – ` 7,500 – ` 20,000) = ` 3,651.
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