Question 1 of 50intermediate🔧 ApplyNumerical5 marks

Soumya and Bimal are partners in a firm Sharing profits and losses in the ratio of 3:2. The balance in their capital and current accounts as on April 01, 2019 were as under: Capital Accounts: Soumya (Rs.) 3,00,000, Bimal (Rs.) 2,00,000; Current Accounts (Cr.): Soumya (Rs.) 1,00,000, Bimal (Rs.) 80,000. The partnership deed provides that Soumya is to be paid salary @ Rs. 500 per month where as Bimal is to get a commission of Rs. 40,000 for the year. Interest on capital is to be credited at 6% p.a. The drawings of Soumya and Bimal for the year were Rs. 30,000 and Rs. 10,000 respectively. The net profit of the firm before making these adjustments was Rs. 2,49,000. Interest on Soumya’s drawings was Rs. 750 and Bimal’s drawings, Rs. 250. Prepare Profit and Loss Appropriation Account and Partner’s Capital and Current Accounts.

Correct Answer

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

ParticularsAmount (Rs.)ParticularsAmount (Rs.)
To Salary (Soumya)6,000By Profit & Loss A/c2,49,000
To Commission (Bimal)40,000By Interest on Drawings:
To Interest on Capital:- Soumya750
- Soumya (3,00,000×6000 \times 6%)18,000- Bimal250
- Bimal (2,00,000×6000 \times 6%)12,000
To Profit transferred to:
- Soumya's Current A/c1,04,400
- Bimal's Current A/c69,600
Total2,50,000Total2,50,000

PARTNERS' CAPITAL ACCOUNTS Dr. Cr.

ParticularsSoumya (Rs.)Bimal (Rs.)ParticularsSoumya (Rs.)Bimal (Rs.)
To Balance c/d3,00,0002,00,000By Balance b/d3,00,0002,00,000

PARTNERS' CURRENT ACCOUNTS Dr. Cr.

ParticularsSoumya (Rs.)Bimal (Rs.)ParticularsSoumya (Rs.)Bimal (Rs.)
To Drawings30,00010,000By Balance b/d1,00,00080,000
To Interest on Drawings750250By Salary6,000-
To Balance c/d1,97,6501,91,350By Commission-40,000
By Interest on Capital18,00012,000
By Profit & Loss Appropriation1,04,40069,600
Total2,28,4002,01,600Total2,28,4002,01,600

Working Notes:

  1. Salary to Soumya: Rs. 500×12500 \times 12 = Rs. 6,000
  2. Interest on Capital: Soumya: 3,00,000×6000 \times 6% = Rs. 18,000; Bimal: 2,00,000×6000 \times 6% = Rs. 12,000
  3. Total Appropriations: 6,000 + 40,000 + 18,000 + 12,000 = Rs. 76,000
  4. Available Profit: 2,49,000 + 750 + 250 = Rs. 2,50,000
  5. Distributable Profit: 2,50,000 - 76,000 = Rs. 1,74,000
  6. Profit Distribution (3:2): Soumya: 1,74,000×3000 \times 3/5 = Rs. 1,04,400; Bimal: 1,74,000×2000 \times 2/5 = Rs. 69,600
Exercise: Do it Yourself | Q: 1 | (Page 11)
For More Understanding

Explanation

This question involves Fixed Capital Method where Capital Accounts remain unchanged and all adjustments pass through Current Accounts. The key steps are: (1) Calculate all appropriations - salary, commission, interest on capital; (2) Add interest on drawings to profit; (3) Distribute remaining profit in 3:2 ratio; (4) Prepare Capital Accounts (fixed) and Current Accounts showing all adjustments.

Solution Steps

  1. Step 1: Calculate appropriations - Salary (Rs. 6,000), Commission (Rs. 40,000), Interest on Capital (Rs. 30,000)

  2. Step 2: Add interest on drawings (Rs. 1,000) to net profit (Rs. 2,49,000) = Rs. 2,50,000

  3. Step 3: Calculate distributable profit: Rs. 2,50,000 - Rs. 76,000 = Rs. 1,74,000

  4. Step 4: Distribute profit in 3:2 ratio: Soumya (Rs. 1,04,400), Bimal (Rs. 69,600)

  5. Step 5: Prepare Capital Accounts (unchanged) and Current Accounts with all adjustments

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