question_answer

Read the following hypothetical text and answer the given questions:

Tom, Tim and Ram decided to start a partnership firm to manufacture 1,000 cost jute bags as plastic bags were creating many environmental problems. Tom contributed Rs. 1,00,000 and Tim contributed Rs. 50,000 as their capital. Ram is specially abled but is very creative and intelligent. He did not contribute any capital.

The terms of partnership were as follows:

[a] Tom, Tim and Ram will share profit in 2: 2:1 ratio.

[b] Interest on capital will be provided to Tom and Tim @ 6% p.a.

[c] Tim advanced a loan of Rs. 10,000 to the partnership firm on 1st October.

[d] Tom will be entitled to a salary of Rs.1,000 per month.

[e] Interest on loan to Tim was allowed @ 6% p.a.

Due to shortage of capital, Tom contributed Rs. 25,000 on 30th September, 2020 and Tim contributed Rs. 10,000 on 1st January, 2021 as additional capital. The profit of the firm for the year ended 31st March, 2021 was Rs. 1,69,800.

Based on the above information you are required to answer the following questions:

State whether the following is true or false:

'Interest on loan is an appropriation of profits and is debited to profit and loss appropriation account'.

 

A)  True                 

B) False

C)  Partly true         

D) Partly false