Question 24 of 50intermediate🔧 ApplyNumerical5 marks

Aakriti and Bindu entered into partnership for making garment on April 01, 2019 without any Partnership agreement. They introduced Capitals of Rs. 5,00,000 and Rs. 3,00,000 respectively on October 01, 2019. Aakriti Advanced. Rs, 20,000 by way of loan to the firm without any agreement as to interest. Profit and Loss account for the year ended March 31 2020 showed profit of Rs, 43,000. Partners could not agree upon the question of interest and the basis of division of profit. You are required to divide the profits between them by preparing Profit and Loss Appropriation Account. Also give reasons in Support of your answer.

Correct Answer

PROFIT AND LOSS APPROPRIATION ACCOUNT Dr. for the year ended March 31, 2020 Cr.

Particulars | Amount (Rs.) | Particulars | Amount (Rs.) To Interest on Aakriti's Loan A/c | 600 | By Profit and Loss A/c | 43,000 To Profit transferred to: | | | Aakriti's Capital A/c | 21,200 | | Bindu's Capital A/c | 21,200 | | Total | 43,000 | Total | 43,000

Working Note: Interest on Aakriti's Loan = Rs. 20,000×6000 \times 6/100×6100 \times 6/12 = Rs. 600

Distributable Profit = Rs. 43,000 - Rs. 600 = Rs. 42,400

Aakriti's Share = Rs. 42,400×1400 \times 1/2 = Rs. 21,200

Bindu's Share = Rs. 42,400×1400 \times 1/2 = Rs. 21,200

Exercise: Numerical Questions | Q: 4 | (Page 38)
For More Understanding

Explanation

This question tests the application of the Indian Partnership Act, 1932 provisions when there is no partnership deed. The key provisions are: (1) Interest on partner's loan is allowed at 6% p.a. even without an agreement - this is a statutory right and a charge against profits; (2) No interest on capital is allowed; (3) No salary or commission is allowed; (4) Profits are shared equally irrespective of capital contributions. The interest on Aakriti's loan of Rs. 20,000 for 6 months (October 1, 2019 to March 31, 2020) at 6% p.a. amounts to Rs. 600. This is deducted first from the profit of Rs. 43,000, leaving Rs. 42,400 to be distributed equally between the partners.

Solution Steps

  1. Step 1: Identify that since there is NO partnership agreement, provisions of Indian Partnership Act apply.

  2. Step 2: Calculate Interest on Aakriti's Loan: Rs. 20,000×6000 \times 6% × 6/12 = Rs. 600 (Loan given on October 01, 2019 for 6 months).

  3. Step 3: Deduct interest on loan from profit: Rs. 43,000 - Rs. 600 = Rs. 42,400 (Distributable Profit).

  4. Step 4: Distribute profit equally between partners: Rs. 42,400 ÷ 2 = Rs. 21,200 each to Aakriti and Bindu.

  5. Step 5: Prepare Profit and Loss Appropriation Account showing interest on loan and equal distribution.

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