Page 120 - AAAXII

Model Test Papers M.113
11.
PROFIT AND LOSS APPROPRIATION ACCOUNT
Dr. for the year ending on 31st March, 2018 Cr.
Particulars ` Particulars `
To Interest on Capital A/cs: By Profit and Loss A/c 9,16,000
Rohit 48,000 [` 9,22,000 – ` 6,000 (WN 1)]
Sahil 36,000 84,000 By Interest on Drawings A/cs:
To Partners’ Salary: Rohit (` 4,00,000 × 5/100 × 6/12) 10,000
Rohit 1,20,000 Sahil (` 5,00,000 × 5/100 × 6/12) 12,500 22,500
Sahil 1,80,000 3,00,000
To Rohit’s Commission 35,000
(1% of ` 35,00,000)
To General Reserve (WN 3) 49,700
To Profit* transferred to Capital A/cs:
Rohit 2,59,900
Sahil 2,09,900 4,69,800
9,38,500 9,38,500

* Division of Profit: Rohit (`) Sahil (`)
Profit up to ` 3,50,000 in the ratio of 4 : 3 2,00,000 1,50,000
Balance (` 1,19,800) Equally 59,900 59,900
2,59,900 2,09,900
Working Notes:
1. As per the Indian Partnership Act, Interest on Partner’s Loan is to be allowed @ 6% p.a. Being a charge
against profit, it is to be debited to Profit and Loss Account. Therefore, Net Profit is reduced by ` 6,000
(i.e., ` 2,00,000 × 6/100 × 6/12).
2. Interest on Drawing has been calculated for an average period of 6 months as date of drawings is not given.
3. Transfer to General Reserve = 10% of ` 4,97,000 (i.e., ` 9,16,000 – ` 84,000 – ` 3,00,000 – ` 35,000)
= ` 49,700.
12. (i) Valuation of Goodwill on the basis of two years’ purchase of Super Profit:
Capital employed = ` 8,00,000
Normal rate of return = 15%
Normal Profit = ` 8,00,000 × 15/100 = ` 1,20,000
Add: Remuneration of all the partners = ` 2,00,000
` 3,20,000

` 3,80,000 + 4,40,000 + 5,00,000` `
Average Profit = = ` 4,40,000
3
Super Profit = Average Profit – Normal Profit
= ` 4,40,000 – ` 3,20,000 = ` 1,20,000

Goodwill = Super Profit × No. of Years’ Purchase
= ` 1,20,000 × 2 = ` 2,40,000.