T.S. Grewal Class 12 Chapter 1 Q.49 - Accounting for Partnership Firm Fundamentals

Question 49

A, B and C were partners in a firm having capitals of ₹50,000; ₹50,000 and ₹1,00,000 respectively. Their Current Account balances were A: ₹10,000; B: ₹5,000 and C: ₹2,000 (Dr.). According to the Partnership Deed the partners were entitled to interest on capital @ 10% p.a. C, being the working partner, was also entitled to a salary of ₹12,000 p.a. The profits were to be divided as: (a) the first ₹20,000 in proportion to their capitals; (b) the next ₹30,000 in the ratio of 5 : 3 : 2; and (c) the remaining profits to be shared equally. The firm earned a net profit of ₹1,72,000 before charging any of the above items. Prepare the Profit & Loss Appropriation Account and pass the necessary Journal entry for the appropriation of profits.

Solution

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)	1,72,000
A’s Current A/c	5,000
B’s Current A/c	5,000
C’s Current A/c	10,000
To Salary to C	12,000
To Profit transferred to Current A/cs:
A	50,000
B	44,000
C	46,000
Total	1,72,000	Total	1,72,000

JOURNAL

Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
2025 Mar 31	Interest on Capital A/c    Dr.		20,000
	To A’s Current A/c			5,000
	To B’s Current A/c			5,000
	To C’s Current A/c			10,000
	(Interest on capital allowed)
2025 Mar 31	Salary A/c    Dr.		12,000
	To C’s Current A/c			12,000
	(Salary allowed to C)
2025 Mar 31	Profit & Loss Appropriation A/c    Dr.		1,40,000
	To A’s Current A/c			50,000
	To B’s Current A/c			44,000
	To C’s Current A/c			46,000
	(Profit distributed)

Working Note – Distribution of ₹1,40,000:
First ₹20,000 in capital ratio 1 : 1 : 2 → A ₹5,000, B ₹5,000, C ₹10,000.
Next ₹30,000 in 5 : 3 : 2 → A ₹15,000, B ₹9,000, C ₹6,000.
Remaining ₹90,000 equally → ₹30,000 each.
Totals: A = ₹50,000; B = ₹44,000; C = ₹46,000.