Skip to content

CMA Intermediate · Financial Accounting · Accounting of Limited Liability Partnership

Arjun and Bhavna share profits 3:2 in an LLP. Interest on capital is allowed at 8% p.a. Arjun's capital on 1 April is Rs 5,00,000 and Bhavna's is Rs 3,00,000. On 1 October Bhavna brings in Rs 2,00,000 additional capital. Bhavna is also entitled to a salary of Rs 36,000 p.a. The LLP's profit before appropriations is Rs 1,00,000. Which statement correctly describes the result?

Interest on capital is Rs 72,000 and the salary is Rs 36,000, so appropriations are Rs 1,08,000 against profit of Rs 1,00,000. This leaves a deficit of Rs 8,000 to be shared 3:2; interest and salary are still credited in full when the agreement provides them.

  1. AThe appropriations exceed profit, so a deficit of Rs 20,800 is shared 3:2 between Arjun and BhavnaCorrect
  2. BResidual profit of Rs 20,800 is shared 3:2
  3. CResidual profit of Rs 4,000 is shared 3:2
  4. DBhavna alone bears the deficit as she draws a salary

Explanation

Interest: Arjun 5,00,000 x 8% = 40,000. Bhavna 3,00,000 x 8% = 24,000 plus 2,00,000 x 8% x 6/12 = 8,000, total 32,000. Interest total 72,000. Salary 36,000. Appropriations 1,08,000 against profit 1,00,000, giving a deficit of Rs 8,000, not 20,800. The deficit of Rs 8,000 is shared 3:2, so the option giving 20,800 does not match the data.

Did you get it right without looking?

One question tells you little. A timed set on Accounting of Limited Liability Partnership shows your real accuracy, how long you take and where you lose marks.

Practise Accounting of Limited Liability PartnershipFree diagnostic mock

More Accounting of Limited Liability Partnership questions