Arun and Barun are partners in firm. The net divisible profit as per Profit and Loss Appropriation A/c of the firm is Rs. 7,50,000. The total interest on partner's drawing is Rs. 12,000. Arun's salary is Rs. 12,000 per quarter and Barun's salary is Rs. 1,20,000 per annum. The net profit/loss earned during this year was:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Rs. 9,06,000
The net divisible profit is what remains after the partners’ salaries are charged and the interest on drawings is added. So the net profit is found by working backwards: add back the salaries and take out the interest on drawings.
Arun’s salary = Rs. 12,000 × 4 quarters = Rs. 48,000
Barun’s salary = Rs. 1,20,000
Total salaries = Rs. 1,68,000
Net profit = Rs. 7,50,000 + Rs. 1,68,000 − Rs. 12,000 = Rs. 9,06,000
Salaries were taken out of the profit in the appropriation account, so they come back. Interest on drawings was added to it as a gain of the firm, so it goes out.
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