Question

A and B are partners sharing profits in the ratio of 3 : 2. C was admitted for 1/6th share of profit with a minimum guaranteed amount of ₹ 10,000. At the close of the first financial year the firm earned a profit of ₹ 54,000. Find out the share of profit which A, B and C will get.

Answer 1

Solution:

                      Profit and Loss Appropriation Account  

Dr                                                                                                                    Cr

Particulars                   Amount Rs.      Particulars                       Amount Rs.

To Profit transferred to :                  By Profit and Loss A/c           54,000

A's A/c         26,400                          (Net Profit)

B's A/c          17,600

Cs A/c           10,000       54,000                                                       54,000

                                        54,000  

Working Note :

C will get higher of the two:  

(i) Share of Profit as per profit sharing ratio, i.e. $\frac{1}{6}$  x 54,000=9,000  

(ii) Minimum guaranteed profit i.e. 10,000

Thus, From net profits of 54,000; Minimum guaranteed profit to C for 10,000 would be adjusted, and then Balance profits of 44,000 (54,000 - 10, 000) will be shared by Rand Bin the ratio 3:2

Accordingly, Final Profit Share of A = $\frac{3}{5}$ x 44 000= 26,400

B= $\frac{2}{5}$ x 44 000=17,600

C = 10,000 (Minimum guaranteed profit)