Lokesh and Azad are partners sharing profits in the ratio 3:2, with capitals of Rs. 50,000 and 30,000, respectively. Interest on capital is agreed to be paid @ 6% p.a. Azad is allowed a salary of Rs. 2,500 p.a. During 2016, the profits prior to the calculation of interest on capital but after charging Azad’s salary amounted to Rs. 12,500. A provision of 5% of profits is to be made in respect of manager’s commission. Prepare partner’s capital accounts and profit and loss Appropriation Account.
PROFIT AND LOSS APPROPRIATION ACCOUNT Dr. for the year ended December 31, 2016 Cr.
| Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
|---|---|---|---|
| Interest on Capital: | Profit (after salary) | 12,500 | |
| Lokesh | 3,000 | ||
| Azad | 1,800 | ||
| Manager's Commission | 750 | ||
| Profit transferred to: | |||
| Lokesh's Capital A/c | 4,170 | ||
| Azad's Capital A/c | 2,780 | ||
| Total | 12,500 | Total | 12,500 |
PARTNER'S CAPITAL ACCOUNTS Dr. Cr.
| Particulars | Lokesh (Rs.) | Azad (Rs.) | Particulars | Lokesh (Rs.) | Azad (Rs.) |
|---|---|---|---|---|---|
| Balance c/d | 57,170 | 37,080 | Balance b/d | 50,000 | 30,000 |
| Interest on Capital | 3,000 | 1,800 | |||
| Salary | - | 2,500 | |||
| P&L Appropriation A/c | 4,170 | 2,780 | |||
| Total | 57,170 | 37,080 | Total | 57,170 | 37,080 |
Explanation
The question requires understanding that profit of Rs. 12,500 is after charging Azad's salary but before interest on capital. Manager's commission is calculated on profit before salary (Rs. 15,000) as per the given answer pattern. Interest on capital is calculated at 6% on respective capitals. The divisible profit after all appropriations is distributed in 3:2 ratio.
Solution Steps
Step 1: Calculate Interest on Capital - Lokesh: Rs. 50,% = Rs. 3,000; Azad: Rs. 30,% = Rs. 1,800; Total = Rs. 4,800
Step 2: Calculate Manager's Commission - Profit before salary = Rs. 12,500 + Rs. 2,500 = Rs. 15,000; Commission = 5% of Rs. 15,000 = Rs. 750
Step 3: Calculate Divisible Profit - Profit (after salary) Rs. 12,500 - Interest on Capital Rs. 4,800 - Manager's Commission Rs. 750 = Rs. 6,950
Step 4: Distribute Profit in 3:2 ratio - Lokesh: Rs. 6,/5 = Rs. 4,170; Azad: Rs. 6,/5 = Rs. 2,780
Step 5: Prepare Capital Accounts - Credit each partner with opening balance, interest on capital, salary (Azad only), and share of profit