X, Y and Z are partners in a firm sharing profits in 3:2:1. However partner Y's share of profit is guaranteed by Partner X at Rs 35,000. During the year, they earned a profit of Rs 90,000. Prepare Profit and Loss Appropriation a/c showing the division of profit.
Answers
Explanation:
Solution
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Profit and Loss Appropriation a/c
(for the year ended 31st March,2018)
Dr. Cr.
Particulars Amount Particulars Amount
To Interest on Capital:
- X
- Y
- Z
50000
50000
25000 By Profit and Loss a/c
(after charging Z's salary) 400000
To Profit transferred to:
- X's Capital a/c
- Y's Capital a/c
- Z's Capital a/c
110000
110000
55000
400000
Given:
- X, Y and Z are partners in a firm, sharing profits and losses in the ratio 3:2:1.
- Y's share of profit is guaranteed at Rs 35,000 by X.
- The firm earned a profit of Rs 90,000.
Objective: To prepare a Profit & Loss Appropriation A/c and show the division of profit.
Answer:
Calculation of the profit distribution:
Since they share their profits and losses in the ratio 3:2:1, it will be distributed accordingly.
For X:
- Profit share = Rs 90,000 × 3/6 = Rs 45,000
For Y:
- Profit share = Rs 90,000 × 2/6 = Rs 30,000
For Z:
- Profit share = Rs 90,000 × 1/6 = Rs 15,000
Deficiency in Y's share = Guaranteed share - Actual share acquired
Deficiency in Y's share = Rs 35,000 - Rs 30,000
Deficiency in Y's share = Rs 5,000
The deficiency will be deducted from X's share [as he guaranteed Y's share] and added to Y's share.
Corrected profit distribution:
For X:
- Profit share = Rs 45,000 - Rs 5,000 = Rs 40,000
For Y:
- Profit share = Rs 30,000 + Rs 5,000 = Rs 35,000
For Z:
- Profit share = Rs 15,000
The Profit & Loss Appropriation Account has been attached below.
