Question

(Guarantee by a partner) A, B and C were partners in a firm sharing profits in 2:3:5 ratio. A was guaranteed a minimum profit of 1,00,000 Any deficiency on this account was to be borne by C. The profit of the firm for the year ended 31-3-2020 was 4,50,000. Prepare Profit and Loss Appropriation Account of A, B and C for the (C.B.S.E., 2007-F-modified) [Ans. A's share 1,00,000, B1,35,000 and C 2,15,000] year ended 31-3-2020.​

Answer 1

Given data:

• A, B and C are partners in a firm sharing profits and losses in the ratio 2:3:5.
• A is guaranteed a minimum profit of Rs 1,00,000.
• Any deficiency arising is to be met by C.
• The profit for the year was Rs 4,50,000.

Objective: To prepare a Profit & Loss Appropriation Account.

Answer:

Let's first calculate the distribution of profit shares.

Profit = Rs 4,50,000

Profit sharing ratio = 2:3:5

Calculation of profit shares:

For A:

• Profit share = Rs 4,50,000 × 2/10 = Rs 90,000

For B:

• Profit share = Rs 4,50,000 × 3/10 = Rs 1,35,000

For C:

• Profit share = Rs 4,50,000 × 5/10 = Rs 2,25,000

Deficiency of A = Guaranteed profit - Actual profit acquired

Deficiency of A = Rs 1,00,000 - Rs 90,000

Deficiency of A = Rs 10,000

Since the deficiency is to be met by C, we will deduct the deficiency arising in A's share from C's share and add the deficiency to A's share.

Corrected profit shares:

For A:

• Profit share = Rs 90,000 + Rs 10,000 = Rs 1,00,000

For B:

• Profit share = Rs 1,35,000

For C:

• Profit share = Rs 2,25,000 - Rs 10,000 = Rs 2,15,000

The Profit & Loss Appropriation Account has been attached below: