Question 25 of 50intermediate🔧 ApplyNumerical5 marks

Rakhi and Shikha are partners in a firm, with capitals of Rs. 2,00,000 and Rs. 3,00,000 respectively. The profit of the firm, for the year ended 2016-17 is Rs. 23,200. As per the Partnership agreement, they share the profit in their capital ratio, after allowing a salary of Rs. 5,000 per month to Shikha and interest on Partner’s capital at the rate of 10% p.a. During the year Rakhi withdrew Rs. 7,000 and Shikha Rs. 10,000 for their personal use. As per partnership deed, salary and interest on capital appropriation treated as charge on profit. You are required to prepare Profit and Loss Appropriation Account and Partner’s Capital Accounts.

Correct Answer

PROFIT AND LOSS APPROPRIATION ACCOUNT Dr. for the year ended 2016-17 Cr.

ParticularsAmount (Rs.)ParticularsAmount (Rs.)
To Shikha's Salary A/c60,000By Profit and Loss A/c23,200
To Interest on Capital:By Loss transferred to:
- Rakhi20,000- Rakhi's Capital A/c34,720
- Shikha30,000- Shikha's Capital A/c52,080
50,000
Total1,10,000Total1,10,000

PARTNER'S CAPITAL ACCOUNTS Dr. Cr.

ParticularsRakhi (Rs.)Shikha (Rs.)ParticularsRakhi (Rs.)Shikha (Rs.)
To Drawings7,00010,000By Balance b/d2,00,0003,00,000
To Loss transferred34,72052,080By Salary-60,000
To Balance c/d1,78,2802,87,920By Interest on Capital20,00030,000
Total2,20,0003,50,000Total2,20,0003,50,000
Exercise: Numerical Questions | Q: 5 | (Page 38)
For More Understanding

Explanation

Since salary and interest on capital are treated as charge on profit (not appropriation), they must be deducted from profit first. The total charges (Rs. 1,10,000) exceed the profit (Rs. 23,200), resulting in a loss of Rs. 86,800. This loss is distributed in capital ratio 2:3. The answer matches the textbook answer: Loss transferred to Rakhi's Capital Rs. 34,720 and Shikha's Capital Rs. 52,080.

Solution Steps

  1. Step 1: Calculate Shikha's Salary = Rs. 5,000×12000 \times 12 months = Rs. 60,000

  2. Step 2: Calculate Interest on Capital - Rakhi: Rs. 2,00,000×10000 \times 10% = Rs. 20,000; Shikha: Rs. 3,00,000×10000 \times 10% = Rs. 30,000; Total = Rs. 50,000

  3. Step 3: Total Charges = Salary + Interest on Capital = Rs. 60,000 + Rs. 50,000 = Rs. 1,10,000

  4. Step 4: Calculate Loss = Profit - Total Charges = Rs. 23,200 - Rs. 1,10,000 = Rs. 86,800 (Loss)

  5. Step 5: Distribute Loss in Capital Ratio (2:3) - Rakhi: Rs. 86,800×2800 \times 2/5 = Rs. 34,720; Shikha: Rs. 86,800×3800 \times 3/5 = Rs. 52,080

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