A and B start business on 1st july 2004 each partner contributing Rs.150000 as his share of capital . Three months later on 1st oct 2004 B makes an additional contribution of Rs. 100000 which is treated as a loan. The profit for the period ended march 2005 was Rs.85000 before charging any interest. Both the partners were entitled to a salary of Rs.3000 each, per quarter. The partners had drawn rs.24000 each on 1st january 2005. prepare the profit and loss account for the period ended 31st march 2005 and pass journal entries.

 

Profit and Loss Appropriation Account

for the year ended March 31, 2005

 

Dr.

 

 

Cr.

 

Particulars

Amount

Rs

Particulars

Amount

Rs

Salary to:

 

Profit and Loss A/c

 

A (3,000 × 3)

9,000

 

(Net Profit)

82,000

B (3,000 × 3)

9,000

18,000

 

 

 

 

 

 

Profit transferred to:

 

 

 

A’s Capital A/c

32,000

 

 

 

B’s Capital A/c

32,000

64,000

 

 

 

 

 

 

 

 

82,000

 

82,000

 

 

       

 

Working Note:

Calculation of Interest on Loan to B

As the partnership deed is silent regarding rate of interest on loan to the partner, so it is to be provided at the rate of 6% p.a.

The interest on loan is to be deducted from the net profit as it is charged against profits. Therefore,

Net profit to be shown in Profit and Loss Appropriation A/c = 85,000 – 3,000 = Rs 82,000

 

Journal

 

Date

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

 

Profit and Loss Appropriation A/c

Dr.

 

18,000

 

 

To A’s Capital A/c

 

 

9,000

 

To B’s Capital A/c

 

 

9,000

 

(Salary paid to A and B)

 

 

 

 

 

 

 

 

 

Profit and Loss Appropriation A/c

Dr.

 

64,000

 

 

To A’s Capital A/c

 

 

32,000

 

To B’s Capital A/c

 

 

32,000

 

(Profit transferred to A and B)

 

 

 

 

       

 

 

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