Multiple choice

Amit and Vijay started a partnership business on 1st April, 2017. Their capital contributions were Rs. 2,00,000 and Rs. 1,50,000 respectively. The Partnership Deed provided that: (a) Interest on capital be allowed @ 10% p.a. (b) Amit to get a salary of 2,000 per month and Vijay 3,000 per month. (c) Profits are to be shared in the ratio of 3 : 2. Profit for the year ended 31st March, 2018 before above appropriations was Rs. 2,16,000. Interest on drawings amounted to Rs. 2,200 for Amit and Rs. 2,500 for Vijay. Which account is prepared to give effect to the above transaction ?

  1. Profit and Loss apprpriation account

  2. Partners Capital Account

  3. Both A & B

  4. None of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The Profit and Loss Appropriation Account records interest on capital, partners' salaries, profit distribution, and interest on drawings. The partners' capital accounts record the resulting credits and debits, so both accounts are used.

AI explanation

The Profit and Loss Appropriation Account is prepared to distribute the profit of 216000 by recording the salaries, interest on capital, and interest on drawings. Following this, the Partners Capital Account is updated to reflect these appropriations and post the final profit shares to each partner's capital. Thus, both accounts are required to complete the accounting cycle for the firm.

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