Preparation of Profit and loss appropriation account :

Illustration : 

Mahesh and Ramesh are partners sharing profits in the ratio of 3:2 with capitals of Rs.50,000 and Rs.40,000 respectively. Interest on
capital is agreed at 8% p.a. Interest on drawings is fixed at 10% p.a. The drawings of the partners were Rs.15,000 and Rs.10,000, the interest for Mahesh Rs.750 and for Ramesh Rs.500. Mahesh is entitled to a salary of Rs.12,000 p.a. and Ramesh is entitled to get a commission of 10% on the Net Profit before charging such commission. The Net Profit of the firm before making the above adjustments was Rs.60,000 for the year ended 31st March, 2005.

Prepare the profit and loss appropriation account.

Solution :

In the Books of the Firm

Dr.                                                                                      Profit and Loss Appropriation Account                                                                                    Cr.

Date	Particulars	Rs.	Date	Particulars	Rs.
2005 Mar 31	To Interest on Capital		2004 Mar 31	By Net profit b/d	60,000
	Mahesh                4,000		2005 Mar31	By Interest on Drawings
	Ramesh                3,200	7,200		Mahesh 750
	To Partners’ salary Mahesh	12,000		Ramesh 500	1,250
“	To Commission Ramesh (10% on Rs. 42,050)	4,205
“	To Profit transferred  to capital A/c
	Mahesh                22,707
	Ramesh                15.138	37,845			________
		61,250			61,250

 

Note: Calculation of commission.

Step 1➙ Total the credit side of the Profit and Loss Appropriation Account. i.e., Rs.61,250.

Step 2➙  Total the debit side of the Profit and Loss Appropriation Account. i.e., Rs. 19,200.

Step 3 ➙ Find the balance. i.e., Rs. 42,050. Step 4 à Apply the formula.

The Balance of Rs. 37,845 (Rs.42,050 – Rs.4,205) is transferred to Partners’ Capital accounts in the ratio.

Illustration : 

X and Y are partners in a firm, sharing profits and losses equally. X is entitled to a salary of Rs.5,000 p.m. Y is entitled to a commission
of 10% of Net profit after charging such commission. Net profit before charging commission and salary was Rs.1,48,000. Show the Profit and loss appropriation account.

Solution:

a) Calculation of salary to X :

 

In the Books of the Firm
Dr.                                                                       Profit and Loss Appropriation Account                                                                         Cr.

Date	Particulars	Rs.	Date	Particulars	Rs.
	To X’s Salary 60,000 By Net profit b/d	1,48,000		By Net profit b/d	1,48,000
	To Y’s Commission	8,000
	To Net profit transferred to:
	X 40,000
	Y 40,000	80,000
		1,48,000			1,48,000