Question

A, B and C were in partnership sharing profits and losses in the ratio of 4 : 2 : 1 respectively. It was provided that C’s share in profit for a year would not be less then ₹ 7,500. The profit for the year ended 31st March, 2018 amounted to ₹ 31,500. You are required to show the appropriation among the partners. The profit and Loss Appropriation Account is not required.

Answer 1

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Answer 2

Solution:

                            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           31,500

A's Capital A/c      16,000                      (Net Profit)

B's Capital A/c       8,000

Cs Capital A/c        7,500    31,500                                                     31,500

                                              31,500  

Working Notes :

Profit for the year = Rs.31,500

Profit sharing ratio = 4:2:1

Minimum profits guaranteed to C Rs.7,500

A's Profit share =31,500 x $\frac{4}{7}$ = 18,000  

B's Profit share =31,500 x $\frac{2}{7}$  =9,000  

C's Profit share = 31,500 x $\frac{1}{7}$  =4,500

C's Actual Profit Share (i.e. Rs.4,500) is less than his Minimum Guaranteed Profit (i.e. 7,500)  

Deficiency in C's Profit Share = Rs.7,500 -Rs. 4,500 = Rs.3,000

This deficiency is to be borne by A and B in their profit sharing ratio i.e. 4:2 Deficiency borne by A =3,000 x $\frac{4}{6}$ =2,000

Deficiency borne by B = 3,000 x $\frac{2}{6}$ =1,000

Therefore, Final Profit Share of A = Rs.18,000 - Rs.2.000 = Rs.16,000

                 Final Profit Share of B = Rs.9,000 - Rs.1,000 = Rs.8,000

                 Final Profit Share of C = Rs.4,500 + Rs.3,000 = Rs.7,500