(Commission to partners) X and Y are partners sharing profits in the ratio 3:2. Their capital on 1st April, 2019 was 2,00,000 and 1,50,000 respectively. As per partnership deed, they were entitled to get interest on capital @ 5% p.a. X is entitled to get a commission of 10% on net distributable profit before charging his commission while Y is entitled to get commission of 10% on profit after charging all commission. Net profit for the year ending 31st March, 2020 before charging interest on capital and commission amounted to 46,650. Prepare Profit and Loss Appropriation Account​

Answer :

To prepare the Profit and Loss Appropriation Account, we'll follow these steps:

Calculate interest on capital for both partners.

Determine the net distributable profit after deducting interest on capital.

Calculate X's commission based on the net distributable profit.

Calculate Y's commission based on the profit after deducting all commissions.

Prepare the Profit and Loss Appropriation Account.

Let's calculate:

Interest on capital:

X's interest = (2,00,000 * 5%) = 10,000

Y's interest = (1,50,000 * 5%) = 7,500

Net distributable profit:

Net profit before interest and commission = 46,650

Net distributable profit = Net profit - (X's interest + Y's interest)

= 46,650 - (10,000 + 7,500)

= 46,650 - 17,500

= 29,150

X's commission:

X's commission = 10% of net distributable profit

= 10% of 29,150

= 2,915

Y's commission:

Y's commission = 10% of (Net profit - X's commission)

= 10% of (46,650 - 2,915)

= 10% of 43,735

= 4,373.50

Now, let's prepare the Profit and Loss Appropriation Account:

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Profit and Loss Appropriation Account

For the year ended 31st March 2020

Particulars             Amount (₹)

-------------------------------------

Net profit before commission   46,650

Interest on capital:

X's Interest                   10,000

Y's Interest                    7,500

-------------------------------------

Net distributable profit       29,150

Less: X's commission            2,915

-------------------------------------

Profit available for distribution 26,235

Less: Y's commission             4,373.50

-------------------------------------

Balance carried to Balance Sheet 21,861.50

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This account shows the distribution of profits among partners after considering interest on capital and commissions.

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