Q.Amit, Babu and Charu set up a partnership firm on April 1, 2019. They contributed ₹50,000, ₹40,000 and ₹30,000, respectively as their capitals and agreed to share profits and losses in the ratio of 3 : 2 : 1. Amit is to be paid a salary of ₹1,000 per month and Babu, a Commission of ₹5,000. It is also provided that interest to be allowed on capital at 6% p.a. The drawings for the year were Amit ₹6,000, Babu ₹4,000 and Charu ₹2,000. Interest on drawings of ₹270 was charged on Amit's drawings, ₹180 on Babu's drawings and ₹90, on Charu's drawings. The net profit as per Profit and Loss Account for the year ending March 31, 2020 was ₹35,660. Prepare the Profit and Loss Appropriation Account to show the distribution of profit among the partners.
After charging Amit's salary (₹12,000), Babu's commission (₹5,000) and interest on capital (₹7,200 total) and crediting interest on drawings (₹540), ₹12,000 remains to be shared 3:2:1 — Amit ₹6,000, Babu ₹4,000, Charu ₹2,000.
Working Notes
Interest on capital (6% p.a., full year since no additions/withdrawals are mentioned):
- Amit: 6% of ₹50,000 = ₹3,000
- Babu: 6% of ₹40,000 = ₹2,400
- Charu: 6% of ₹30,000 = ₹1,800
- Total = ₹7,200
Amit's salary: ₹1,000 × 12 months = ₹12,000.
Interest on drawings (given directly): Amit ₹270, Babu ₹180, Charu ₹90 = ₹540 total.
Solution
Profit and Loss Appropriation Account
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| Amit's salary | 12,000 | Profit and Loss A/c (Net profit) | 35,660 |
| Babu's commission | 5,000 | Interest on drawings: Amit 270, Babu 180, Charu 90 | 540 |
| Interest on capital: Amit 3,000, Babu 2,400, Charu 1,800 | 7,200 | ||
| Share of profit transferred to capital accounts: | |||
| — Amit (3/6 of 12,000) | 6,000 | ||
| — Babu (2/6 of 12,000) | 4,000 | ||
| — Charu (1/6 of 12,000) | 2,000 | ||
| Total | 36,200 | Total | 36,200 |
Residual profit available for the 3:2:1 split = (35,660 + 540) − (12,000 + 5,000 + 7,200) = 36,200 − 24,200 = ₹12,000, divided 3:2:1 as ₹6,000 : ₹4,000 : ₹2,000.
The Profit and Loss Appropriation Account totals ₹36,200 on each side. Final entitlement: Amit ₹21,000 (salary ₹12,000 + interest ₹3,000 + profit share ₹6,000), Babu ₹11,400 (commission ₹5,000 + interest ₹2,400 + profit share ₹4,000), Charu ₹3,800 (interest ₹1,800 + profit share ₹2,000).
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