Accounting: Partnership General: Product Method and Profit and Appreciation Account

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When Equal amount of money is withdrawn quarterly in the beginning of the month.

Table 1 Supporting: Accounting: Partnership General: Product Method and Profit and Appreciation Account

Tablutation of: Date, Amount (Rs.), Months, Product

Date

Amount (Rs.)

Months

Product

1st Jan, 2016

1000

12

12000

1st Jan, 2016

1000

9

9000

1st Jan, 2016

1000

6

6000

1st Jan, 2016

1000

3

3000

Total

4000

30 Months

30,0000

Interest on Drawing =

Profit and Appreciation Account

Meaning: It is an extension of Profit and Loss A/c but when it comes to Partnership Firm there will be number of partners and profits or losses will be divided based on pre-determined ratio. Before distribution of final profits different adjustments need to be done. After adjustments profits per head goes down. For all these adjustments we need to record journal entries. These are —

  • In case of net profit:

Profit and Loss A/c Dr.

To Profit and Loss Appropriation A/c

(Net Profit transferred to Profit and Loss Appropriation A/c)

  • In case of Net loss:

Profit and Loss Appropriation A/c Dr.

To Profit and Loss A/c

(Net Loss transferred to Profit and Loss Appropriation A/c)

  • For transfer of Interest on Capital:

Profit and Loss Appropriation A/c Dr.

To Interest on Capital A/c

(Interest on capital transferred to Profit & Loss Appropriation A/c)

  • For transferring Interest on Drawings:

Interest on Drawings A/c Dr.

To Profit and Loss Appropriation A/c

(Interest on drawing transferred to Profit & Loss Appropriation A/c)

  • For Partner’s Salary:

Profit and Loss Appropriation A/c Dr.

To Salary A/c

(Salary transferred to profit & Loss Appropriation A/c)

  • For transferring commission

Profit and Loss Appropriation A/c Dr.

To Commission A/c

(Commission transferred to Profit and Loss Appropriation A/c)

  • For Transfer of balance to General Reserve:

Profit and Loss Appropriation A/c Dr.

To General Reserve A/c

(Transfer of balance to General Reserve)

  • For share of Profit or Loss on appropriation:

For profit:

Profit and Loss Appropriation A/c Dr.

To Partner’s Capital/Current A/c

(Profit transferred to capital/current A/c)

For Loss:

Partner’s Capital/ Current A/c Dr.

To Profit and Loss Appropriation A/c

(Loss transferred to capital/current A/c)

Image of Profit and Loss Appropriation Account Example 2

Image of Profit and Loss Appropriation Account Example 2

Image of Profit and Loss Appropriation Account Example 2

Example: Monika and Krishan are partners with a capital of Rs.80,000 and Rs.1,00,000

Respectively. They agree on the followings:

(a) To share profit equally. (b) Interest allowed on capital @ 9% p.a.

(c) Interest charged on drawing @ 6% p.a. (d) Salary to be paid to krishan @ 600 per month.

(e) Monika withdrew Rs.8,000 and Krishan Rs.6,000 during the year.

Interest on drawing is charged for Profit for the year ending December 31,

2006 is Rs.56,000. You are required to prepare Profit and Loss Appropriation account.

Solution:

Image of Profit and Loss Appropriation Account

Image of Profit and Loss Appropriation Account

Image of Profit and Loss Appropriation Account

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