Profit & Loss Appropriation Account

1 Mark Question

1. The firm XYZ earned a profit of Rs. 2,75,000 during the year ending on 31st

March, 2009. 10% of this profit was to be transferred to general reserve. Pass necessary journal entry for the same. (Delhi 2010c)

JOURNAL

Ans.

Date Particulars LF Amt (Dr) Amt (Cr)

Profit and Loss Appropriation A/c Dr 27,500

To General Reserve A/c 27,500

(Being 10% of profit transferred to general reserve account)

4 Mark Questions

1. Singh and Gupta decided to start a partnership firm to manufacture low cost

jute bags as plastic bags were creating many environmental problems. They contributed capitals of Rs. 1,00,000 and Rs. 50,000 on 1st April, 2012 for this. Singh expressed his willingness to admit Shakti as a partner without capital, who is specially abled but a very creative and intelligent friend of his. Gupta agreed to this. The terms of partnership were as follows

1. Singh, Gupta and Shakti will share profits in the ratio of 2:2:1.
2. Interest on capital will be provided @ 6% per annum.

Due to shortage of capital, Singh contributed Rs. 25,000 on 30th September, 2012 and Gupta contributed Rs. 10,000 on 1st January, 2013 as additional capital. The profit of the firm for the year ended 31st March, 2013 was Rs. 1,68,900.

1. Prepare profit and loss appropriation account for the year ending 31st March, 2013.
2. Identify any two values which the firm wants to communicate to the society. (All India 2014)

Ans. (i)

Profit and Loss Appropriation Account for the year ended 31st March, 2013

Particulars Amt (₹) Particulars Amt (₹)

To Interest on Capital A/c's By Net Profit as per Profit and Loss A/c 1,68,900

Singh 6,750 Gupta 3,150 9,900 To Profit Transferred to Capital A/c's Singh 63,600 Gupta 63,600 Shakti 31,800 1,59,000 1,68,900

Working Note

Interest on Capital

Singh On <math>1,00,000 = 1,00,000 \times \frac{6}{100} = 6,000</math>; On <math>25,000 = 25,000 \times \frac{6}{100} \times \frac{6}{12} = 750</math>

Total interest on Singh's capital = <math>6,000 + 750 = 6,750</math>

Gupta On <math>50,000 = 50,000 \times \frac{6}{100} = 3,000</math>; On 10,000 = 10,000 <math>\times \frac{6}{100} \times \frac{3}{12} = 150</math>

Total interest on Gupta's capital = <math>3,000 + 150 = 3,150</math>

1. Lalan and Balan were partners in a firm sharing profits in the ratio of 3: 2. Their

fixed capitals on 1st April, 2010 were Lalan Rs. 1, 00,000 and Balan Rs. 2,00,000.

They agreed to allow interest on capital @ 12% per annum and charge on drawings @ 15% per annum. The firm earned a profit, before all above adjustments, of Rs. 30,000 for the year ended 31st March, 2011.

The drawings of Lalan and Balan during the year were Rs. 3,000 and Rs. 5,000 respectively. Showing your calculation clearly, prepare profit and loss appropriation account of Lalan and Balan. The interest on capital will be allowed even if the firm incurs loss. (All India 2012)