X and Y are partners in a firm. X is entitled to a salary of ₹2,000 per month together with a commission of 10% of net profit before charging any commission. Y is entitled to a salary of ₹5,000 per annum together with a commission of 10% net profit after charging all commissions.

Question

X and Y are partners in a firm. X is entitled to a salary of ₹2,000 per month together with a commission of 10% of net profit before charging any commission. Y is entitled to a salary of ₹5,000 per annum together with a commission of 10% net profit after charging all commissions. Net profit before charging any commission for the year was ₹55,000. Prepare Profit and Loss Appropriation Account.

Accepted Answer

>

> [!TLDR]
> After charging salaries and commissions as per the partnership terms, the balance profit of ₹16,000 is split equally, giving X a total of ₹37,500 and Y a total of ₹17,500 in the Profit and Loss Appropriation Account.
>
> **Given:**
> - X: Salary ₹2,000 per month (= ₹24,000 per year) + commission @10% of net profit BEFORE charging any commission
> - Y: Salary ₹5,000 per annum + commission @10% of net profit AFTER charging all commissions
> - Net Profit before charging any commission = ₹55,000
> - No profit-sharing ratio is specified for the balance, so (per the Indian Partnership Act, 1932, default rule) the residual profit is shared EQUALLY between X and Y.
>
> **Step 1 — X's Commission** (10% of profit BEFORE any commission):
> X's Commission = 10% × 55,000 = **₹5,500**
>
> **Step 2 — Y's Commission** (10% of profit AFTER charging ALL commissions, i.e., after both X's and Y's own commission):
> Let Y's commission = C
> Profit after both commissions = 55,000 − 5,500 − C = 49,500 − C
> C = 10% × (49,500 − C)
> C = 4,950 − 0.10C
> 1.10C = 4,950
> C = **₹4,500**
> (Check: Profit after commissions = 55,000 − 5,500 − 4,500 = 45,000; 10% of 45,000 = 4,500 ✓)
>
> **Step 3 — Profit and Loss Appropriation Account:**
> | Particulars | ₹ | Particulars | ₹ |
> |---|---|---|---|
> | To X's Salary A/c (2,000 × 12) | 24,000 | By Net Profit b/d | 55,000 |
> | To Y's Salary A/c | 5,000 | | |
> | To X's Commission A/c | 5,500 | | |
> | To Y's Commission A/c | 4,500 | | |
> | To Profit transferred: | | | | …

Dr.	Profit and Loss Appropriation Account	Cr.
Particulars	Amount (Rs)	Particulars
To Interest on Capital:		By Net Profit (transferred from P&L A/c)
– Partner A	XXX
– Partner B	XXX
To Partner’s Salary (if any)	XXX
To Partner’s Commission (if any)	XXX
To General Reserve	XXX
To Profit transferred to:
– Partner A’s Capital A/c	XXX
– Partner B’s Capital A/c	XXX
Total	XXX	Total

Item	Shown in Appropriation A/c?
Interest on Partners' Capital	Yes (debit)
Salary payable to a partner	Yes (debit)
Interest on Partners' Drawings	Yes (credit)
Interest on Partner's Loan	No — charge against profit, shown in P&L A/c
…

Concept understanding — Profit Appropriation Account

Profit Appropriation Account – A First Look

Why does it matter?

Accounting treatment – the logic

The format (as per NCERT Class 12)

Particulars	₹	Particulars	₹
To X's Salary A/c (2,000 × 12)	24,000	By Net Profit b/d	55,000
To Y's Salary A/c	5,000
To X's Commission A/c	5,500
To Y's Commission A/c	4,500
To Profit transferred:

Account	Debit	Credit
Profit and Loss Appropriation A/c	✓
Partner's Capital A/c (or Current A/c)		✓
…

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