Partnership

Accounting

Medium

common

Amitabh and Babul are partners sharing profits in the ratio of 3:2, with capitals of Rs. 50,000 and Rs. 30,000 respectively. Interest on capital is agreed @ 6% p.a. Babul is to be allowed an annual salary of Rs. 2,500. Manager is to be allowed commission @ 5,000. Amitabh has also given a Loan on April 01 , 2019 of Rs. 50,000 to the firm without any agreement. During the year 2019-20, the profits earned is Rs. 22,250. Profit and Loss Appropriation account shows balance of the Profit and Loss A/c (Net profit before Babul's salary) amounted to:

Rs. 14500

Rs. 14250

Rs. 14750

Rs. 14350

✅ Correct Option: 2

The net profit earned during 2019-20 is Rs. 22,250. Before this amount is transferred to the Profit and Loss Appropriation Account, interest on Amitabh's loan needs to be charged.

Since Amitabh gave the loan on April 01, 2019 without any agreement, interest will be charged as per the Partnership Act at 6% p.a.

Interest on Amitabh's Loan:

$50,000 \times \frac{6}{100} \times \frac{12}{12} = Rs. 3,000$

(The loan was given on April 01, 2019 for the financial year 2019-20, hence interest is for 12 months)

Amount transferred to Profit and Loss Appropriation Account:

$22,250 - 3,000 = Rs. 19,250$

In the Profit and Loss Appropriation Account, the first appropriation is the Manager's commission:

Amount available = Rs. 19,250

Less: Manager's commission = Rs. 5,000

Balance (Net profit before Babul's salary) = Rs. 14,250

This is the balance before charging interest on capitals and Babul's salary. The term "before Babul's salary" indicates that manager's commission has been deducted (as it's charged first), but partner-specific appropriations like interest on capital and salary haven't been deducted yet.

The correct answer is Option 2: Rs. 14,250

2026: 24 May Shift 1

Profit and Loss Appropriation Account has the following features:

(A) It is merely an extension of the Profit and Loss Account of the firm.

(B) It shows how the profits are appropriated or distributed among the partners.

(D) All adjustments in respect of partner's salary, partner's commission, interest on capital, interest on drawings, etc. are made through this account.

Choose the correct answer from the options given below:

2026: 31 May Shift 1

If any partner has advanced loan to the firm for the purpose of business, he/she shall be entitled to get an interest on the loan amount at the rate of ............. % per annum.

2026: 21 May Shift 1

Partnership deed should be properly drafted and prepared as per the provisions of:

2024

2026: 13 May Shift 2

Select the correct statements from the following related to the partnership.

(A) Rent paid to a partner is always an appropriation of profit.

(B) Interest on Loan from Partner is always a charge against profit.

(D) Interest on Loan to Partner is not a charge against profit.

Choose the correct statements from the given options below :-

2026: 29 May Shift 1

If the capital of a firm is Rs. 2,00,000 and profit earned by the firm is Rs. 48,000. Match the value of goodwill, according to the super profit method of goodwill valuation at the different normal rate of return on the firm's capital on the basis of 3 years of purchase.

List-I (Value of Goodwill)	List-II (Normal Rate of Return on Capital)
(A) Rs. 54,000	(I) 12%
(B) Rs. 72,000	(II) 15%
(C) Rs. 84,000	(III) 18%
(D) Rs. 36,000	(IV) 10%

Choose the correct answer from the options given below:

Solution

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