X and Y are partners in a firm sharing profits in the ratio of 3 : 2. The have a manager, Z, who gets ₹ 10,000 p.m. salary plus commission of 5% of the profit after charging his salary and commission, Now, they decide to admit Z as a partner, giving him 1/5th share in the profits of the firm. Any excess amount which Z receives as a partner (over his salary and commission) will be borne by X. The profit for the year ended 31st March, 2018 amounted to ₹ 8,40,000 after charging Z’s salary. Prepare Profit and Loss Appropriation Account showing the division of profit for the year.
Answers
Solution:
Profit and Loss Appropriation Account
for the year ended Merck 31,2018
Dr. Cr.
Particulars Rs. Particulars Rs.
To Profit transferred to : By Profit and Loss A/c 9,60,000
X's Capital A/c 4,48,000 (Excluding Z's Salary)
Y's Capital A/c 3,20,000
Z's Capital A/c 1,92,000 9,60,000
9,60,000 9,60,000
Working Notes:
1. Calculation of Remuneration to Z as a Manager
Salary to Z = Rs.1,20,000
Commission to Z= 5% of Net Profit after salary and commission
Net Profit after salary and commission = Rs.8,40,000 s
Commission - 8, 40, 000 x = 40000
Remuneration to Z as a Manager = Salary + Commission
= 1,20,000 + 40,000
= Rs.1,60,000
2. Calculation of Profit Share of Z as a Partner
Total Profit = Rs.9,60,000
Profit on Z's Share - 9, 60, 000 x = 192,000
Z's Profit share to be borne by X = Rs.1,92,000 - Rs.1,60,000 = Rs.32,000
Profits available for distribution between X and Y
= Rs.9,60,000 - Rs.1,60,000 = Rs.8,00,000
Profit on X's Share = 8, 00,000 x =4, 80,000
Profit on Y's Share = 8,00, 000 x = 3, 20, 000
X's Share in profits after adjusting Z's deficiency
= Rs.4,80,000 - Rs.32,000 = Rs.4,48,000