A, B and C are partners in a firm. Their profit-sharing ratio is 2 : 2 : 1. C is guaranteed a minimum amount of ₹ 10,000 as share of profit every year. Any deficiency arising on that amount shall be met by B. The profits for the two years ended 31st March, 2017 and 2018 were ₹ 40,000 and ₹ 60,000 respectively. Prepare Profit and Loss Appropriation Account for the two years.
Answers
Solution:
Profit and Loss Appropriation Account
For the year ended 2017
Dr Cr
Particulars Rs. Particulars Rs.
To Profit transferred to : By Profit and Loss A/c 40,000
A's Capital A/c 16,000 (Net Profit)
B's Capital A/c 14,000
C's Capital A/c 10,000 40,000
40.000 40,000
Profit and Loss Appropriation Account
For the year ended 2018
Dr Cr
Particulars Rs. Particulars Rs. To Profit transferred to : By Profit and Loss A/c 60,000 A's Capital A/c 24,000 (Net Profit)
B's Capital A/c 24,000
C's Capital A/c 12,000 60,000
60,000, 60,000
Working Notes :
1. Distribution of Profit for the year 2017
Profit for 2017 = Rs.40,000
Profit sharing ratio = 2 : 2 :1
C is a given a guarantee of minimum profit of Rs.10,000
A's Profit Share = 40,000 x =16 000
B's Profit Share = 40,000 x =16 000
Cs Profit Share = 40,000 x = 8 ,000
Deficiency in C's Profit Share = Rs.10,000 - Rs.8,000 = Rs.2,000
This deficiency is to be borne by B
Therefore , Final Profit Share of A =Rs. 16,000
Final Profit Share of B = Rs.16,000 - Rs.2,000 = Rs.14,000
Final Profit Share of C = Rs.8,000 + Rs.2,000 = Rs.10,000
2. Distribution of Profit for the year 2018
Profit for 2018
Profit sharing ratio = 2:2 : 1
C is given a guarantee of minimum profit of Rs.10,000
A's Profit Share = 60,000 x =24, 000
B's Profit Share = 60,000 x =24, 000
C's Profit Share =60,000 x = 12,000
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