M, N and O are partners in a firm sharing profits equally (1:1:1). M's share of profit is guaranteed at Rs 20,000. Any deficiency arising out of the guarantee will be met by partners N and O in 3:2. During the year, they earned a profit of Rs 45,000. Show distribution of profit.
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Given:
- M, N and O are partners in a firm, sharing profits and losses equally.
- M's share of profit is guaranteed at Rs 20,000.
- Any deficiency arising in M's share is to be borne by N and O in the ratio 3:2.
- The profit during the year was Rs 45,000.
Objective: To show the distribution of profit.
Answer:
Calculation of profit distribution:
Since they share their profits and losses equally, it will be distributed accordingly.
For M:
- Profit share = Rs 45,000 × 1/3 = Rs 15,000
For N:
- Profit share = Rs 45,000 × 1/3 = Rs 15,000
For O:
- Profit share = Rs 45,000 × 1/3 = Rs 15,000
Deficiency in M's share = Guaranteed share - Acquired share
Deficiency in M's share = Rs 20,000 - Rs 15,000
Deficiency in M's share = Rs 5,000
Calculation of deficiency to be borne:
As per the question, the deficiency is to be borne by N and O in the ratio 3:2.
For N:
- Deficiency to be borne = Rs 5,000 × 3/5 = Rs 3,000
For O:
- Deficiency to be borne = Rs 5,000 × 2/5 = Rs 2,000
The deficiency to be borne by N and O will be deducted from their shares and added to M's share.
Corrected profit distribution:
For M:
- Profit share = Rs 15,000 + Rs 5,000 = Rs 20,000
For N:
- Profit share = Rs 15,000 - Rs 3,000 = Rs 12,000
For O:
- Profit share = Rs 15,000 - Rs 2,000 = Rs 13,000
The Profit & Loss Appropriation Account has been attached below.
Attachments:
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