John and Mathew share profits and losses in the ratio of 3:2. They admit Mohanty into their
firm for 1/6 share in profits. John personally guaranteed that Mohanty’s share of profit, after charging
interest on capital @ 10 per cent per annum, would not be less than Rs. 30,000 in any year. The
capital provided was as follows:
John Rs. 2,50,000, Mathew Rs. 2,00,000 and Mohanty Rs. 1,50,000. The profit for the year
ending March 31,2015 amounted to Rs. 1,50,000 before providing interest on capital. Show the
Profit & Loss Appropriation Account if the new profit sharing ratio is 3:2:1.
Answers
Profit & loss Appropriation account
Dr. Cr.
Particulars. Amt. particulars. Amt.
int on capital Net profit. 1,50,000
john. 25,000
Mathew. 20,000
Mohanty. 15,000. 60,000
Capital account
john. 45,000
less:
Share of
deficiency 15,000. 30,000
Mathew. 30,000
Mohanty. 15,000
add:
deficiency
receiving. 15,000. 30,000
from john
1,50,000. 1,50,000
Working notes:
Profit after interest on capital is Rs. 90,000, which is to be distributed in the ratio of 3:2:1 as follows:
John gets Rs. 45,000 (3/6 × Rs. 90,000),
Mathew Rs. 30,000,
Mohanty Rs. 15,000.
Deficiency of Mohanty from the guaranteed profit of Rs. 15,000 will be borne by John.
John will therefore get Rs. 45,000 – Rs. 15,000 = Rs. 30,000, Mathew Rs. 30,000 and Mohanty Rs. 30,000.