Profit and Loss Appropriation Account Problems and Solutions

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Problem # 1:

Haris and Usama started business in partnership on 1^st January, 2019 without any agreement. Mr. Haris introduced capital Rs. 60,000 and Mr. Usama Rs. 40,000. On March 1^st, 2019 Mr. Usama advanced Rs. 20,000 by way of loan to the firm. The profit for the year ended 31^st, December 2019, was amounted to Rs, 18,000.

Required: Prepare Profit and Loss Appropriation Account at the end of 2019.

Solution:

Study more about Profit and Loss Appropriation Account

Problem # 2:

Basit and Laiba are partners in a firm sharing profit in the ratio of 3:2. They had advanced to the firm a sum of Rs. 50,000 as a loan in their profit-sharing ratio on 1^st, July 2019. The partnership deed is silent on interest on loan from partners. Profit for current year was Rs. 85,000.

Required: Prepare Profit and Loss Appropriation Account at the end of March 31^st, 2020.

Solution:

Working

Amount of loan contributed by each of partners:

Basit = 50,000 * 3/5 = Rs. 30,000

Laiba = 50,000 * 2/5 = Rs. 20,000

Interest on loan for each of partners:

Basit = 30,000 * 6% * 9/12 = Rs. 1,350

Laiba = 20,000 * 6% * 9/12 = Rs. 900

Problem # 3:

Sohail and Maham are partners in a firm sharing profit in the ratio of 5:3. The partnership agreement provided that Sohail was to be paid salary of Rs. 1,500 per month and Maham was to get a commission of Rs. 12,000 per year. Interest on capital was to be allowed @ 4% p.a. and interest on drawings was to be charged @ 5% p.a. Interest on Sohail’s drawings was Rs. 1,800 and Maham’s drawings was Rs. 1,200. Capital of Sohail was Rs. 140,000 and Maham Rs. 100,000. The firm earned a profit Rs. 75,000 for the year ended December 31^st, 2019.

Required: Prepare Profit and Loss Appropriation Account of the firm.

Solution:

Practice Partnership MCQs

Problem # 4:

Huda and Anum are partners sharing profit and losses in the ratio of 3:2. On 1^st April, 2019 their capitals were: Huda was 80,000 and Anum Rs. 40,000. Prepare Profit and Loss Appropriation Account and the Partner’s Capital Accounts at the end of April 30^th, 2020, after considering the following items:

(a) Interest on Capital is to be allowed Rs. 5% per annum.

(b) Interest on the loan advance by Huda of Rs. 6,000 and Anum Rs. 4,500.

(c) Interest on partner’s drawings @ 6% p.a. Drawing: Huda Rs. 20,000 and Anum Rs. 15,000.

(d) Rs. 7,100 is to be transferred to Reserve Account.

The net profit for the end of year April 30^th, 2020 was Rs. 46,500.

Solution:

Problem # 5:

Ayesha and Zunaira are partners in a firm. Ayesha is entitled to a salary of Rs. 10,000 per month and commission of 10% of the net profit after partners’ salaries but before charging commission. Zunaira is entitled to a salary of Rs. 25,000 p.a. and commission of 10% of the net profit after charging Ayesha’s commission and partners’ salaries. Net profit before providing for partners’ salaries and commission for the year ended 31^st, March, 2020 was Rs. 420,000.

Requirement: You are required to prepare profit and loss appropriation account.