Partnership
Amit, Babu and Charu set up a partnership firm on April 1, 2022. They contributed ₹50,000, ₹40,000 and ₹30,000, respectively as their capitals and agreed to share profits and losses in the ratio of 2 : 2 : 1. Amit is to be paid a salary of ₹1,000 per month and Babu, a commission of ₹5,000. It is also provided that interest to be allowed on capital at 6% p.a. The drawings for the year were Amit ₹6,000, Babu ₹4,000 and Charu ₹2,000. Interest on drawings of ₹300 was charged on Amit's drawings, ₹200 on Babu's drawings and ₹100, on Charu's drawings. The net profit as per Profit and Loss Account for the year ending March 31, 2023 was ₹55,000 before charging manager's commission. Manager was allowed commission @ 10% on net profit after charging such commission.
From the above information answer.
Net Profit transferred from Profit and Loss Account to Profit and Loss Appropriation A/c is:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → ₹50,000
The manager is not a partner. His commission is an expense of the business, so it is charged in the Profit and Loss Account, and only the profit left after it is carried to the Profit and Loss Appropriation Account.
The commission is 10% of the profit after charging the commission itself, so the profit before commission is 110 parts:
Manager’s commission = ₹55,000 × 10/110 = ₹5,000
Net profit transferred = ₹55,000 − ₹5,000 = ₹50,000
Carrying the full ₹55,000 forgets the commission; ₹49,500 comes from taking 10% of ₹55,000, which is commission on the profit before charging it.
NCERT (2026-27 edition):
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