Question

Arun, Varun and Tarun were partners of a law firm sharing profits in the ratio of5:3:2. Their partnership deed provided the following:(i) Interest on partners' capital @ 5% p.a.(ii) Arun guaranteed that he would earn a minimum annual fee of Rs.6,00,000 for the firm.(iii) Tarun was guaranteed a profit of Rs. 2,50,000 (excluding interest oncapital) and any deficiency on account of this was to be borne by Arunand Varun in the ratio of 2:3.During the year ending March 31, 2019, Arun earned a fee of Rs. 3,20,000 andnet profits earned by the firm were Rs. 8,60,000. Partner's capital on April 01,2018 were Arun - Rs. 30,00,000; Varun - Rs. 3,00,000 and Tarun- Rs. 2,00,000.Prepare Profit and Loss Appropriation account and show your workings clearly​

Answer 1

We are asked to prepare the profit and loss appropriation account of the partners based on the data that is provided to us in the question. The profit and loss appropriation account that will be prepared is as under:

• We need to prepare the profit and loss appropriation account as we have done it as under.
• These require some working notes that are as under:
• Arun's deficiency in the annual fee will be:

             $Rs.6,00,000 - 3,20,000 = Rs.2,80,000$

• Tarun's deficiency in profits will be:

              $Rs. 2,50,000 - 2,20,000 = 30,000$

• This amount will have to be borne by Arun and Varun in the ratio $3 : 2$
• Arun will have to pay $Rs.12,000$
• Varun will have to pay $Rs. 18,000$

PROJECT CODE: #SPJ2

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