Read the following information to answer.
Arun and Ram are partners in a restaurant business sharing profits and losses in capital ratio. Their fixed capital from the beginning of the firm was ₹2,00,000 and ₹1,50,000 respectively.
The profit for the year ended 31 March 2022 before the appropriation of Salary and Interest on Capital was ₹2,20,000. Ram is allowed a salary of ₹2,000 per quarter, and both partners are allowed interest on capital @ 10% p.a.
Due to the further expansion of the business, they decided to admit Sanjeev as a new partner for 1/5 share in profits. It was agreed that Sanjeev will bring ₹1,00,000 as capital and ₹50,000 as his share of Goodwill. It was decided that he will give ₹1,00,000 as loan to the firm for 3 years.
The amount of salary to be shown in the Dr. side of P & L Appropriation A/C will be:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → ₹8,000
Partner’s salary is debited to the Profit and Loss Appropriation Account for the full year.
Ram’s salary = ₹2,000 per quarter × 4 quarters = ₹8,000
Taking only one quarter (₹2,000) or treating ₹2,000 as a monthly salary (₹24,000) are the usual slips.