Tag: preparation of profit and loss appropriation account

Questions Related to preparation of profit and loss appropriation account

Which of the following appear in the Profit & Loss Appropriation Account? 

book keeping and accountancy accounting for partnership preparation of profit and loss appropriation account profit and loss appropriation account profit and loss appropriation account and distribution of profits among partners

  1. Salary/Commission to a partner. 

  2. Salary/Commission to a manager. 

  3. Interest on capital of a partner. 

  4. Interest on loan of a partner. 

  5. (a) & (c). 

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Correct Option: E
Explanation:
A AND C.
A Profit and loss Appropriation account is an account which is prepared after profit and loss account and is usually prepared by partnership firms for distribution/allocation of profit earned by the firm to partners. Only items relating to partners will be entered in Profit and loss Appropriation like interest on capital, profit, interest on drawings, salary/commission to partners. 

When Profit & Loss Appropriation Account is prepared? 

book keeping and accountancy accounting for partnership preparation of profit and loss appropriation account profit and loss appropriation account profit and loss appropriation account and distribution of profits among partners

  1. For Proprietorship. 

  2. For Partnership firm. 

  3. Both (a) and (b). 

  4. None of the above. 

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Correct Option: B
Explanation:

Profit and loss Appropriation account is prepared for partnership firm. It is an extension of profit and loss account. It is used for allocation and distribution of Net profit among partners, reserves and dividends. It Is usually prepared after preparing Profit and loss account. 

A and B 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. B is to be allowed an annual salary of Rs. 2,500. During 2016, the profits of the year prior to calculation of interest on capital but after charging B's salary amounted to Rs. 12,500. Calculate the amount of profits to be distributed to A and B after the above effect.

book keeping and accountancy accounting for partnership preparation of profit and loss appropriation account profit and loss appropriation account profit and loss appropriation account and distribution of profits among partners

  1. A's Profit Rs. 4,389; B's Profit Rs. 2,926

  2. A's Profit Rs. 4,620; B's Profit Rs. 3,080

  3. A's Profit Rs. 4,000; B's Profit Rs. 3,000

  4. A's Profit Rs. 4,300; B's Profit Rs. 2,900

Show answer
Correct Option: B
Explanation:


A and B share profits in ratio 3:2

                              Profit & Loss Appropriation A/c

 Particulars (Dr.)  Amount  Particulars (Cr.) Amount 
 To interest on capitalA's capital       3,000B's capital       1,800To salary a/c (B)To profit on appropriationA's capital         4,620B's capital         3,080 4,8002,5007,700  By P&l a/c    12,500 + B's salary  2,500  15,000

Hence, A's share of proit is $Rs4,620$ whereas B's share is $Rs3,080$

Which of the following would not be found in a partnership appropriation account?

book keeping and accountancy accounting for partnership preparation of profit and loss appropriation account profit and loss appropriation account profit and loss appropriation account and distribution of profits among partners

  1. Interest on capital

  2. Interest on loan by partner to partnership

  3. Interest on drawings

  4. Salaries

Show answer
Correct Option: B
Explanation:

partnership appropriation account is to allow adjustments to be made to the net income from the profit and loss account before distribution of any residual net income is made to the partner capital accounts. The adjustments include such items as partner salaries and interest on partner capital, loans and drawings accounts.