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✦ FREE LEARNING — CLASS 11 & 12 — CBSE · PSEB — ACCOUNTS · ECONOMICS · BST ✦
Atul and Mithun are partners sharing profits in the ratio of 3 : 2. Balances as on 1st April, 2024 were as follows: Capital Accounts (fixed): Atul ₹5,00,000 and Mithun ₹6,00,000; Loan Accounts: Atul ₹3,00,000 (Cr.) and Mithun ₹2,00,000 (Dr.). It was agreed to allow and charge interest @ 8% p.a. on the loan accounts. The Partnership Deed provided to allow interest on capital @ 10% p.a. Interest on drawings was charged ₹5,000 each. Profit before giving effect to the above was ₹2,28,000 for the year ended 31st March, 2025. Prepare the Profit & Loss Appropriation Account.
Profit & Loss Appropriation Account (for the year ended 31st March, 2025)
| Particulars (Dr.) | ₹ | Particulars (Cr.) | ₹ |
|---|---|---|---|
| To Interest on Capital: | By Profit & Loss A/c (Net Profit) | 2,20,000 | |
| Atul’s Current A/c | 50,000 | By Interest on Drawings: | |
| Mithun’s Current A/c | 60,000 | Atul’s Current A/c | 5,000 |
| To Profit transferred to Current A/cs: | Mithun’s Current A/c | 5,000 | |
| Atul (1,20,000 × 3/5) | 72,000 | ||
| Mithun (1,20,000 × 2/5) | 48,000 | ||
| Total | 2,30,000 | Total | 2,30,000 |
Working Notes:
Interest on loans is a charge against profit: interest allowed on Atul’s loan to the firm = ₹3,00,000 × 8% = ₹24,000; interest charged on the firm’s loan to Mithun = ₹2,00,000 × 8% = ₹16,000.
Net profit for appropriation = ₹2,28,000 – ₹24,000 + ₹16,000 = ₹2,20,000.
Interest on capital: Atul = ₹5,00,000 × 10% = ₹50,000; Mithun = ₹6,00,000 × 10% = ₹60,000.
Divisible profit = ₹2,20,000 – ₹1,10,000 + ₹10,000 = ₹1,20,000, shared in 3 : 2.
Accounting & Commerce Educator
Sarbjit Singh holds a B.Com and M.Com degree and has over 12 years of teaching experience in double entry bookkeeping, financial accounting, and business studies.
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