Page 123 - MA12

Model Test Papers M.29

Working Notes: PROFIT AND LOSS ACCOUNT
1. Dr. for the year ended 31st March, 2020 Cr.
Particulars ` Particulars `
To Interest on John’s Loan A/c 15,000 By Net Profit before Adjustments 2,37,000
(` 5,00,000 × 6/100 × 6/12)
To Manager’s Salary A/c (` 2,000 × 12) 24,000
To Manager’s Commission A/c 18,000
[10/110 (` 2,37,000 – ` 15,000 – ` 24,000)]
To Net Profit transferred to Profit and Loss
Appropriation A/c 1,80,000
2,37,000 2,37,000

2. Interest on Partner’s Loan, Manager’s Salary and Commission are charges against the profits and not
appropriations of profits. Hence, these items have been debited to Profit and Loss Account and not to
Profit and Loss Appropriation Account.
(b) CALCULATION OF PAST ADJUSTED PROFITS
Particulars 2016–17 (`) 2017–18 (`) 2018–19 (`) 2019–20 (`)
Profits as per Books 1,01,000 1,24,000 1,00,000 1,40,000
Less: Management Cost 24,000 24,000 24,000 24,000
77,000 1,00,000 76,000 1,16,000
Less: Overvaluation of Closing Stock ... 12,000 ... ...
77,000 88,000 76,000 1,16,000
Add: Overvaluation of Opening Stock ... ... 12,000 ...
77,000 88,000 88,000 1,16,000
Add: Major repair of plant to be treated as
Capital Expenditure ... ... 30,000 ...
77,000 88,000 1,18,000 1,16,000
Less: Depreciation on Capital Expenditure
@ 10% on time basis by w.d.v. method ... ... 1,000 2,900
77,000 88,000 1,17,000 1,13,100
Less: Sale Proceeds of Machinery wrongly
credited to Profit and Loss A/c ... 11,000 ... ...
77,000 77,000 1,17,000 1,13,100
Add: Depreciation on above Sold Machinery ... 1,000 900 810
Adjusted Profit(P) 77,000 78,000 1,17,900 1,13,910
CALCULATION OF WEIGHTED PROFIT
Year Ended Profits (`) Weight Weighted Profit (`)
31st March, 2017 77,000 1 77,000
31st March, 2018 78,000 2 1,56,000
31st March, 2019 1,17,900 3 3,53,700
31st March, 2020 1,13,910 4 4,55,640
Total 10 10,42,340
` 10,42,340
Weighted Average Profit = = ` 1,04,234
10
Goodwill = Weighted Average Profit × Number of Years’ Purchase
= ` 1,04,234 × 3 = ` 3,12,702.