question_answer

X and Y are partners in a firm sharing profits and losses equally. On 1st April, 2016, the capitals of the partners were Rs. 2,00,000 and Rs. 1,50,000 respectively. The profit and loss appropriation account of the firm showed a net profit of Rs. 3,75,000 for the year ended 31st March, 2017. The terms of partnership deed provided the following:

(i) Transfer 10% of distributable profits to reserve fund.

(ii) Interest on capitals @ 6% p.a.

(iii) Interest on drawings @ 6% p.a. Drawings being X Rs. 40,000 and Y Rs. 30,000. The partners decided to provide clean drinking water and build toilets in a nearby school.

Prepare profit and loss appropriation account for the year ended 31st March, 2017.

Answer:

                                                Profit and Loss Appropriation Account Dr                                             for the year ending 31st March, 2017                                                         Cr

Particulars		Amt (Rs.)	Particulars	Amt (Rs.)
To Interest on Capital A/cs			By Net Profit as per Profit and Loss A/c	3,75,000
X \[\left( 2,00,000\times 6/100 \right)\]	12,000		By Interest on Drawings A/cs
Y \[\left( 1,50,000\times 6/100 \right)\]	9,000	21,000	X \[(40,000\times 6/100\times 6/12)\]	1,200
To Reserve Fund A/c		35,610	Y \[(30,000\times 6/100\times 6/12)\]	900
To Profit Transferred to Partners' Capital A/cs
X	1,60,245
Y	1,60,245	3,20,490
		3,77,100		3,77,100

Note: In the absence of date of drawings, interest on drawings has been calculated on an average basis for 6 months. Working Note Calculation of Amount Transferred to Reserve Fund Distributable Profits = Profit + Interest on Drawings - Interest on Capital = 3,75,000 + 1,200 + 900 -12,000 - 9,000 = Rs. 3,56,100 Amount transferred to reserve fund \[=3,56,100\times \frac{10}{100}=Rs.\,35,610\]