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Question
Why is the Profit and loss appropriation account prepared?
Solution
The profit and loss appropriation account is an extension of the profit and loss account prepared for the purpose of adjusting the transactions relating to amounts due to and amounts due from partners. It is a nominal account in nature. The balance being the profit or loss is transferred to the partners’ capital or current account in the profit-sharing ratio.
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RELATED QUESTIONS
Which of the following is shown in the Profit and loss appropriation account?
Sibi and Manoj are partners in a firm. Sibi is to get a commission of 20% of net profit before charging any commission. Manoj is to get a commission of 20% on net profit after charging all commission. Net profit for the year ended 31st December 2018 before charging any commission was ₹ 60,000. Find the commission of Sibi and Manoj. Also, show the distribution of profit.
Anand and Narayanan are partners in a firm sharing profits and losses in the ratio of 5 : 3. On 1st January 2018, their capitals were ₹ 50,000 and ₹ 30,000 respectively. The partnership deed specifies the following:
- Interest on capital is to be allowed at 6% per annum.
- Interest on drawings charged to Anand and Narayanan are ₹ 1,000 and ₹ 800 respectively.
- Interest on drawings charged to Anand and Narayanan are ₹ 1,000 and ₹ 800 respectively.
Give necessary journal entries and prepare profit and loss appropriation account as on 31st December 2018. Assume that the capitals are fluctuating.
Dinesh and Sugumar entered into a partnership agreement on 1st January 2018, Dinesh contributing ₹ 1,50,000 and Sugumar ₹ 1,20,000 as capital. The agreement provided that:
- Profits and losses to be shared in the ratio 2 : 1 as between Dinesh and Sugumar.
- Partners to be entitled to interest on capital @ 4% p.a.
- Interest on drawings to be charged Dinesh: ₹ 3,600 and Sugumar: ₹ 2,200
- Dinesh to receive a salary of ₹ 60,000 for the year, and
- Sugumar to receive a commission of ₹ 80,000
During the year ended on 31st December 2018, the firm made a profit of ₹ 2,20,000 before adjustment of interest, salary and commission. Prepare the Profit and loss appropriation account.
Antony and Ranjith started a business on 1st April 2018 with capitals of ₹ 4,00,000 and ₹ 3,00,000 respectively. According to the Partnership Deed, Antony is to get the salary of ₹ 90,000 per annum, Ranjith is to get 25% commission on profit after allowing salary to Antony and interest on capital @ 5% p.a. but after charging such commission. The profit-sharing ratio between the two partners is 1 : 1. During the year, the firm earned a profit of ₹ 3,65,000.
Prepare profit and loss appropriation account. The firm closes its accounts on 31st March every year.
Anand and Narayanan are partners in a firm sharing profits and losses in the ratio of 5:3. On 1st January 2018, their capital was ₹ 50,000 and ₹ 30,000 respectively. The partnership deed specifies the following:
- Interest on capital is to be allowed at 6% per annum.
- Interest on drawings charged to Anand and Narayanan are ₹ 1,000 and ₹ 800 respectively.
- The net profit of the firm before considering interest on capital and interest on drawings amounted to ₹ 35,000.
Give necessary journal entries and prepare profit and loss appropriation accounts as on 31st December 2018. Assume that the capitals are fluctuating.
