Profit & Loss Appropriation Account.

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the answer has been included along with the question and i haven't understood anything. especially the interest on the loan and partners capital accounts.

asked Apr 3, 2016 in General by bm19171 (2 points) 168 views

1 Answer

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Dear BM, it is a very simple question.  Let me first explain the question to you:

1. There are mainly 4 departments (including three shops).


2. Funds employed by each department, namely, Shop A, B, C and Repair shop are Rs.140000, Rs.90000, Rs.60000 and Rs.30000 respectively.


3. Each department has to pay @ 7.5% as interest on loan and capital employed in the department.  Interest paid by each department is credited in an account named ‘Interest on Capital and Loan Account’.  After this the total amount collected is credited to partners’ capital accounts @ 7.5%.  Loan advanced by partners is Rs.100000.  First debit the ‘Interest on Capital and Loan A/c with Rs.7500 as interest on loan.  After that, credit each partner’s capital account @ 7.5% on his capital.  For example, A has invested Rs.100000 as capital, hence his capital account is credited by Rs.7500.  This account will be closed after this entry.


4.  In case of Repair Department, first appropriate interest @ 7.5% on Rs.30000 (Rs.2250).  After this debit Repair Department with salary payable to C (Rs.4000).  Balance amount of profit is distributed to shops A, B and C in the ratio of turnover they had with Repair Department (A, B and C - 55000:30000:15000).  With this, Repair Department A/c is closed.


5.  Now turn your attention to Appropriation of Shops A, B and C.  Let us understand the working of Shop A.  A has earned a profit of Rs.64000.  Add to this the profit (Rs.1100) received from Repair Department.  Total profit available for distribution is Rs.65100.  Shop A has employed capital of Rs.140000.  Debit A for interest @ 7.5% on Rs.140000 (Rs.10500).  Of the remaining Rs.54600, 90% will be paid to A and 10% will be credited to a General Pool Account.  This type of distribution will be done by each department.

6.  Amount credited to General Pool from all the three shops will be distributed among A, B and C in their profit sharing ration (3:2:1).  With this General Pool Account will be closed.
answered Apr 4, 2016 by jbsclasses (3,805 points)