Understanding Partnership Profit Appropriation

In a partnership firm, the profit earned during the year is distributed among partners after considering various appropriations like partner salaries, interest on capital, commission, etc. The remaining profit is then shared among partners in their agreed profit-sharing ratio. This question involves calculating a partner's total share of profit, which includes their interest on capital and their share of the distributable profit.

Step-by-Step Profit Distribution Calculation

Let's break down the calculation to determine Amir's total share of profits credited to his current account.

1. Identify the Profit Before Appropriation

The profit for the year before any appropriations is given as Rs. 50,000.

Profit Before Appropriation = $\text{Rs. } 50,000$

2. Calculate Interest on Capital for Each Partner

Interest on Capital is provided at 10% per annum on the respective capital balances.

• Shagun's Capital = Rs. 1,00,000
• Amir's Capital = Rs. 89,000
• Interest Rate = 10% p.a.

Calculation:

• Shagun's Interest on Capital = $10\% \text{ of } \text{Rs. } 1,00,000 = \text{Rs. } \left( \frac{10}{100} \times 1,00,000 \right) = \text{Rs. } 10,000$
• Amir's Interest on Capital = $10\% \text{ of } \text{Rs. } 89,000 = \text{Rs. } \left( \frac{10}{100} \times 89,000 \right) = \text{Rs. } 8,900$

3. Calculate Partner's Salary

Only Shagun receives a salary.

Shagun's Salary = $\text{Rs. } 4,000$

4. Calculate Total Appropriations from Profit

Total appropriations include Shagun's salary and the interest on capital for both partners.

Total Appropriations = Shagun's Salary + Shagun's Interest on Capital + Amir's Interest on Capital

Total Appropriations = $\text{Rs. } 4,000 + \text{Rs. } 10,000 + \text{Rs. } 8,900 = \text{Rs. } 22,900$

5. Calculate Remaining Profit for Distribution

The remaining profit is the profit before appropriation minus the total appropriations.

Remaining Profit = Profit Before Appropriation - Total Appropriations

Remaining Profit = $\text{Rs. } 50,000 - \text{Rs. } 22,900 = \text{Rs. } 27,100$

6. Distribute the Remaining Profit

The partners share profits and losses equally. The profit-sharing ratio is 1:1.

Amir's Share of Remaining Profit = Remaining Profit $\times \frac{1}{2}$

Amir's Share of Remaining Profit = $\text{Rs. } 27,100 \times \frac{1}{2} = \text{Rs. } 13,550$

7. Calculate Amir's Total Share of Profits

Amir's total share credited to his current account includes his Interest on Capital and his share of the remaining profit.

Amir's Total Share = Amir's Interest on Capital + Amir's Share of Remaining Profit

Amir's Total Share = $\text{Rs. } 8,900 + \text{Rs. } 13,550 = \text{Rs. } 22,450$

Thus, the total share of profits credited to Amir‘s current account is Rs. 22,450.

Revision Table: Key Partnership Appropriations

Additional Information: Partnership Profit and Loss Appropriation Account

The Profit and Loss Appropriation Account is an extension of the Profit and Loss Account in a partnership firm. Its main purpose is to show how the net profit for the year is distributed among the partners after accounting for various items stipulated in the partnership deed.

Key features of the Profit and Loss Appropriation Account:

• It starts with the net profit or net loss as per the Profit and Loss Account.
• Debit side includes items like Interest on Capital, Partner's Salary, Partner's Commission, and transfer to reserves.
• Credit side includes items like Net Profit from P&L Account and Interest on Drawings.
• The balance of this account represents the divisible profit or loss, which is then distributed among partners in their profit-sharing ratio and transferred to their Capital or Current Accounts.
• This account is prepared only when there is a profit available for distribution after meeting all expenses.
• If there is insufficient profit or a loss, some appropriations (like interest on capital, salary) may not be fully allowed unless the partnership deed specifies they are a charge against profits (meaning they must be paid regardless of profit). In this question, the total appropriations (Rs. 22,900) are less than the profit (Rs. 50,000), so all appropriations are allowed.