Amitabh and Babul are partners sharing profits in the ratio of 3:2, with capitals of Rs. 50,000 and Rs. 30,000 respectively. Interest on capital is agreed @ 6% p.a. Babul is to be allowed an annual salary of Rs. 2,500. Manager is to be allowed commission Rs. 5,000. Amitabh has also given a Loan on April 01, 2019 of Rs. 50,000 to the firm without any agreement. During the year 2019-20, the profits earned is Rs. 22,250. Profit and Loss Appropriation account shows balance of the Profit and Loss A/c (Net profit before Babul's salary) amounted to-
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Rs. 14250
The net profit carried to the Profit and Loss Appropriation Account is the profit left after all charges against profit. The manager’s commission and the interest on a partner’s loan are charges; Babul’s salary and interest on capital are appropriations, shown later in the same account.
Profit earned = Rs. 22,250
Less: Manager’s commission = Rs. 5,000
Less: Interest on Amitabh’s loan = Rs. 50,000 × 6% = Rs. 3,000 (no agreement, so 6% p.a. as per the Act)
Net profit before Babul’s salary = Rs. 22,250 − Rs. 5,000 − Rs. 3,000 = Rs. 14,250
NCERT (2026-27 edition):
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