Question

X, Y and Z are partners in a firm sharing profits in the ratio of 4:2:1. It is provided that Z’s share in profit would not be less than Rs 75,000. Profit for the year ended 31st March, 2021 was Rs.3,15,000. Prepare Profit & Loss Appropriation A/c​

Answer 1

Given data:

• X, Y and Z are partners sharing profits and losses in the ratio 4:2:1.
• Z is guaranteed a minimum of Rs 75,000.
• The profit for the year is Rs 3,15,000.

Objective: To prepare a Profit & Loss Appropriation A/c.

Answer:

Let's first find the profit shares of each partner.

Since the profits are shared in the ratio 4:2:1, they must be distributed accordingly.

For X:

• Profit share = Rs 3,15,000 × 4/7 = Rs 1,80,000

For Y:

• Profit share = Rs 3,15,000 × 2/7 = Rs 90,000

For Z:

• Profit share = Rs 3,15,000 × 1/7 = Rs 45,000

As mentioned in the question, Z is to have at least Rs 75,000. He is getting Rs 45,000 instead. Let's calculate his deficiency.

Deficiency of Z = Guaranteed profit to Z - Actual profit acquired by Z

Deficiency of Z = Rs 75,000 - Rs 45,000

Deficiency of Z = Rs 30,000

Since it hasn't been mentioned by whom the deficiency is to be borne, it will be met by the remaining partners, i.e., X and Y, in their profit sharing ratio, i.e., 4:2. We will subtract the deficiency from X and Y and add the deficiency to Z.

Therefore, the new profit distribution is as follows:

For X:

• Profit share = Rs 1,80,000 - (Rs 30,000 × 4/6) = Rs 1,60,000

For Y:

• Profit share = Rs 90,000 - (Rs 30,000 × 2/6) = Rs 80,000

For Z:

• Profit share = Rs 45,000 + Rs 30,000 = Rs 75,000

The Profit & Loss Appropriation A/c has been attached below.