Amitabh and Babul are partners sharing profits in the ratio of 3:2, with capitals of ₹50,000 and ₹30,000 respectively. Interest on capital is agreed @ 6% p.a. Babul is to be allowed an annual salary of ₹2,500. Manager is to be allowed commission ₹5,000. Amitabh has also given a Loan on April 01, 2019 of ₹50,000 to the firm without any agreement. During the year 2019-20, the profits earned is ₹22,250. What amount of profit will be transferred to Profit and Loss Appropriation account -
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Rs. 14,250
Only appropriations of profit among the partners go into the Profit and Loss Appropriation Account. Items that are charges against profit are deducted first, and the balance is what is transferred to the Appropriation Account.
Profit earned = Rs. 22,250
Less: Manager’s commission = Rs. 5,000 (an employee’s pay, a charge)
Less: Interest on Amitabh’s loan = Rs. 50,000 × 6% = Rs. 3,000 (no agreement, so 6% p.a. under the Act; a charge)
Profit transferred to the Appropriation Account = Rs. 22,250 − Rs. 5,000 − Rs. 3,000 = Rs. 14,250
Babul’s salary and interest on capital are appropriations, so they are shown inside the Appropriation Account and are not deducted here.
NCERT (2026-27 edition):
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