Forums
Back
Profit and loss appropriation a/c
Accountancy
What is the order that we should use for writing the expenses Here, first interest on capital is written and then reserve is made out of the balance. Why can't we first make reserve and then charge the remaining items??
Answers (6)
Here, Net profit is Rs.45,000. Interest on loan is Rs.120. The reason for this is that, interest on loan is also an expense and you should provide for it too. Then, the realizable net profit will amount to Rs.44,880. And only then you will calculate reserve and provide for it. In short, any reserve or provision should me made after providing for all other expenses relating to it.
Shankari C
Reserve should be appropriated atlast only after providing for all expenses. Interest on capital should come first only
Reserve is nothing but taking some portion of profit for future activities or expenses which need to be made after charging all expenses