Reena and Raman are partners with capitals of Rs. 3,00,000 and Rs. 1,00,000 respectively. The profit for the year ended March 31, 2020 was Rs. 1,80,000, before paying rent for her personal building to be used as godown for firm to Reena payable at Rs. 5000 per month. Interest on capital is to be allowed at 6% p.a. Raman was entitled to a salary of Rs. 30,000 p.a. The drawings of partners were Rs. 30,000 and 20,000. The interest on drawings to be charged to Reena was Rs. 1,000 and to Raman, Rs. 500. Assuming that Reena and Raman are equal partners. State their share of profit after necessary appropriations.
Share of Profit: Reena - Rs. 33,750 and Raman - Rs. 33,750
Explanation
The question requires preparation of Profit and Loss Appropriation Account. First, rent payable to Reena (Rs. 60,000) must be deducted from profit before appropriations as it is a charge against profits. Then interest on capital, salary, and interest on drawings are appropriated. The remaining profit is distributed equally between partners.
Solution Steps
Step 1: Calculate Net Profit available for Appropriation Profit before rent = Rs. 1,80,000 Less: Rent to Reena (Rs. 5,) = Rs. 60,000 Net Profit = Rs. 1,20,000
Step 2: Calculate Interest on Capital Interest on Reena's Capital = 6% of Rs. 3,00,000 = Rs. 18,000 Interest on Raman's Capital = 6% of Rs. 1,00,000 = Rs. 6,000 Total Interest on Capital = Rs. 24,000
Step 3: Add Interest on Drawings Interest on Reena's Drawings = Rs. 1,000 Interest on Raman's Drawings = Rs. 500 Total Interest on Drawings = Rs. 1,500
Step 4: Calculate Distributable Profit Net Profit = Rs. 1,20,000 Add: Interest on Drawings = Rs. 1,500 Total = Rs. 1,21,500 Less: Interest on Capital = Rs. 24,000 Less: Raman's Salary = Rs. 30,000 Remaining Profit = Rs. 67,500
Step 5: Distribute Profit Equally Reena's Share = Rs. 67,/2 = Rs. 33,750 Raman's Share = Rs. 67,/2 = Rs. 33,750