Q.A and B are partners sharing profits and losses in the ratio 3:2. Their partnership deed provides for interest on capital at 10% per annum on their fixed capitals of ₹2,00,000 (A) and ₹1,00,000 (B), a monthly salary of ₹1,000 to A, and a commission of ₹6,000 to B. The net profit for the year, before any of these appropriations, is ₹1,20,000. Prepare the Profit and Loss Appropriation Account and show the final amount payable to each partner.

Deduct interest on capital, salary, and commission from the net profit first; divide what remains in the agreed 3:2 ratio.

Interest on capital (₹20,000 + ₹10,000) + A's salary (₹12,000) + B's commission (₹6,000) = ₹48,000; residual profit ₹72,000 divided 3:2 gives A ₹43,200 and B ₹28,800.

Step 1 — Interest on capital. A: ₹2,00,000 × 10% = ₹20,000. B: ₹1,00,000 × 10% = ₹10,000. Total = ₹30,000.

Step 2 — Salary and commission. A's salary = ₹1,000 × 12 months = ₹12,000. B's commission = ₹6,000 (given as a flat figure).

Step 3 — Residual (divisible) profit. Net profit ₹1,20,000 − (₹30,000 interest + ₹12,000 salary + ₹6,000 commission) = ₹1,20,000 − ₹48,000 = ₹72,000.

Step 4 — Divide the residual profit 3:2. A = ₹72,000 × 3/5 = ₹43,200. B = ₹72,000 × 2/5 = ₹28,800.

Profit and Loss Appropriation Account

Step 5 — Cross-check (dual solve). Total amount finally due to A = ₹20,000 (interest) + ₹12,000 (salary) + ₹43,200 (share) = ₹75,200. Total amount finally due to B = ₹10,000 (interest) + ₹6,000 (commission) + ₹28,800 (share) = ₹44,800. Adding these two independently-built totals: ₹75,200 + ₹44,800 = ₹1,20,000, which exactly matches the original net profit — confirming no arithmetic error.

A frequent error is dividing the FULL net profit of ₹1,20,000 in the 3:2 ratio directly, forgetting that interest on capital, salary, and commission must first be deducted to arrive at the residual profit that is actually shared in the profit-sharing ratio.