A and B are in partnership sharing profits and losses in the ratio of 3 : 2. They decided to admit C, their Manager, as a partner with effect from 1st April, 2017, giving him 1/4th share of profits.
C, while a Manager, was in receipt of a salary of ₹ 27,000 p.a. and a commission of 10% of the net profits after charging such salary and commission.
In terms of the Partnership Deed, and excess amount, which C will be entitled to receive as a partner over the amount which would have been due to him if he continued to be the manager, would have to be personally borne by A out of his share of profit. Profit for the year ended 31st March, 2018 amounted to ₹ 2,25,000. You are required to show Profit and Loss Appropriation Account for the year ended 31at March, 2018.
Answers
Solution:
Profit and Loss Appropriation Account
for the year and March 31,2018
Dr Cr
Particulars Rs. Particulars Rs.
To Profit transferred to : By Profit and Loss A/c 2,25,000
A's Capital A/c 96,750
\B's Capital A/c 72,000
C's Capital A/c 56.250 2,25,000
2,25,000 225,000
Working Notes :
1. Calculation of Remuneration to C as a Manager
Salary to C = Rs.27,000
Commission to C =10% of Net Profit after Salary and Commission
Net Profit after Salary and Commission = Rs.2,25,000 - Rs.27,000
= Rs.1,98,000
Commission to C =1,98,000 x = 18,000
C's remuneration as Manager = Salary + Commission
= Rs.27,000 + Rs.18,000 = Rs.45,000
2. Calculation of Profit Share of C as a Partner
Profit = Rs.2,25,000
C's Profit Share =2,25, 000 x = 56, 250
Part of C's Profit Share to be borne by A = Rs.56,250 - Rs.45,000
=Rs. 11,250
Profit available for distribution between A and B = Rs.2.25,000 - Rs.45,000
= Rs.1,80,000
A's Share of Profit =1,80,000 x =1,08,000
B's Share of Profit =1,80,000 x =72,000
A's Profit Share after adjusting C's deficiency = Rs.1,08,000 - Rs.11,250
= Rs.96,750
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