Question 43 Chapter 2 of +2-Part-1
43. (Profit and loss adjustment a/c) On April 1, 2018 John and Robert commenced business as partners with an initial capital of Rs.20,000 and Rs.30,000 in their respective accounts. The partnership deed provided inter alia that
1. Profit/Loss shall be shared in the ratio of 2:3 as between John and Robert.
2. Partners shall be entitled to interest on capital at the commencement of each year at 6% p.a. and
3. Interest on drawings shall be charged at 8% p.a.
During the year ended 31-3-2019, the firm made a profit of Rs.19,280 before adjustment of interest on capital and drawings. The partners withdrew during the year Rs.3,000 each at the end of every quarter commencing from 30-6-2018.
You are required to open a profit and loss adjustment account.
The solution of Question 43 Chapter 2 of +2 Part-1: –
| Profit and Loss App. A/c |
|||||
| Particulars |
Amount | Particulars |
Amount | ||
| To Interest on capital – John | 1,200 | By Profit b/d | 19,280 | ||
| -Robert | 1,800 | 3,000 | By interest on drawings: | ||
| -John | 360 | ||||
| -Robert | 360 | 720 | |||
| To Net profit transferred to Capital a/cs | |||||
| -John | 6,800 | ||||
| -Robert | 10,200 | 17,000 | |||
| 20,000 | 20,000 | ||||
| Dr. | Profit and Loss Account A/c |
Cr. | |||||
| Particulars |
John | Robert | Particulars |
John | Robert | ||
| To Drawings A/c | 12,000 | 12,000 | By Balance b/d | 20,000 | 30,000 | ||
| To Interest on Drawings A/c | 360 | 360 | By Interest on Capital A/c | 1,200 | 1,800 | ||
| By P&L Adjustment A/c | 6,800 | 10,200 | |||||
| To Balance c/d | 15,640 | 29,640 | |||||
| 28,000 | 42,000 |
28,000 | 42,000 | ||||
Working Note: –
Calculation of Interest on A’s Drawings:
We will do it with the product method because of partner withdrawal a different amount every time.
| Date |
Amount (A) |
Period Left after(B) | Product (C=A*B) |
| 30-6-18 | 3,000 | 9 | 27,000 |
| 30-9-18 | 3,000 | 6 | 18,000 |
| 31-1218 | 3,000 | 3 | 9,000 |
| 31-3-19 | 3,000 | 0 | 0 |
| Sum of Product | 54,000 | ||
| Interest on Drawing | = | 54,000 | X | 8 | X | 1 |
| 100 | 12 | |||||
| Interest on Drawing | = | 360/- |
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Chapter No. 1 – Accounting Not-for-Profit Organisations (Deleted from the Syllabus)
Chapter No. 2 – Partnership Accounts – I (Introduction)
Chapter No. 3 – Partnership Accounts – II (Goodwill: Nature and Valuation)
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Chapter No. 4 – Partnership Accounts – III (Reconstitution of Partnership)
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Chapter No. 7 – Partnership Accounts – VI (Dissolution of Partnership Firm)
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- Chapter No. 1 – Accounts of Non-Profit Organisations (Deleted from the Syllabus)
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- Chapter No. 3 – Partnership Accounts – II (Goodwill)
- Chapter No. 4 – Partnership Accounts – III (Change in Profit Sharing Ratio among Existing Partners)
- Chapter No. 5 – Partnership Accounts – IV (Admission of A Partner)
- Chapter No. 6 – Partnership Accounts – V (Retirement and Death of A Partner)
- Chapter No. 7 – Partnership Accounts – VI (Dissolution of Partnership Firm)
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