Profit and Loss Appropriation Account for the year ending on 31st December 2014

Particulars Amount (in Rs.)
Net Profit before charging commission and salary 33,000
Less:
Salary to Y 6,000
Commission to Z (@2% on sales) 6,600
Net Profit before charging commission to X 20,400
Commission to X (@10% on net profit after charging commission) 1,944
Net Profit after charging commission and salary 12,856
Less:
Transfer to General Reserve 1,285.60
Profit available for appropriation 11,570.40
Appropriation of Profit:
Transfer to Capital Accounts:
X (3/6 x 11,570.40) 5,785.20
Y (2/6 x 11,570.40) 3,856.80
Z (1/6 x 11,570.40) 1,928.40
Total Transfer to Capital Accounts 11,570.40

Explanation:

Accounting for partnership firms is the process of recording, classifying, summarizing, and analyzing financial transactions of a partnership firm. The fundamentals of accounting for partnership firms include:

1. Partnership Deed: It is a legal document that outlines the terms and conditions of the partnership. It contains details such as the name of the firm, the capital contribution of each partner, the profit-sharing ratio, the duties and responsibilities of each partner, etc.

2. Capital Accounts: Each partner maintains a separate capital account that records the capital contribution made by them and the share of profits or losses. The capital accounts are adjusted at the end of each accounting period.

3. Profit and Loss Account: It is a nominal account that records all the revenue and expenses of the partnership firm. The net profit or loss is transferred to the partners' capital accounts.

4. Profit and Loss Appropriation Account: It is a nominal account that records the distribution of profits among partners. It includes items such as salaries, commissions, transfer to reserves, etc.

In the given problem, the Profit and Loss Appropriation Account is prepared as follows:

1. Calculation of Net Profit: The net profit before charging commission and salary is calculated by multiplying the sales by the profit percentage (10%). The net profit is Rs. 33,000.

2. Salary to Y: Y is allowed a salary of Rs. 6,000 p.a. The salary is deducted from the net profit to arrive at the net profit before charging commission to X.

3. Commission to Z: Z is entitled to get a commission of 2% on sales. The commission is calculated as Rs. 6,600 (2% of Rs. 3,30,000) and deducted from the net profit.

4. Net Profit before charging commission to X: The net profit before charging commission to X is calculated by subtracting the salary and commission from the net profit. The net profit before charging commission to X is Rs. 20,400.

5. Commission to X: X is entitled to get a commission of 10% on the net profit after charging commission and salary. The commission is calculated as Rs. 1,944 (10% of Rs. 20,400) and deducted from the net profit after charging commission and salary.

6. Net Profit after charging commission and salary: The net profit after charging commission and salary