12th | Accounting For Partnership Firms Fundamentals | Question No.  71 To 75 | Solution 2022-2023

On 31st March, 2014, the balances in the Capital Accounts of Saroj, Mahinder and Umar after making adjustments for profits and drawings, etc., were  ` 80,000,  ` 60,000,  ` 40,000 respectively. Subsequently, it was discovered that the interest on capital and drawings has been omitted.
(a) The profit for the year ended 31st March, 2014 was  ` 80,000.
(b) During the year Saroj and Mahinder each withdrew a sum of  ` 24,000 in equal instalments in the end of each month and Umar withdrew  ` 36,000.
(c) The interest on drawings was to be charged @ 5% p.a. and interest on capital was to be allowed @ 10% p.a.
(d) The profit-sharing ratio among partners was 4 : 3 : 1.
Showing your workings clearly, pass the necessary rectifying entry.

 
Working Notes:
 

Capitals of kajal, Neerav and Alisha as on 31st March, 2022 amounted to  ` 90,000,  ` 3,30,000 and  ` 6,60,000 respectively. Profit of  ` 1,80,000 for the year ended 31st March, 2022 was distributed in the ratio of 4 : 1 : 1 after allowing interest on Capital @ 10% p.a. During the year, each partner withdrew  ` 3,60,000. The Partnership Deed was silent as to profit-sharing ratio but provided for interest on capital @ 12%.
Pass the necessary adjustment entry showing the working clearly.

Statement Showing Adjustment:

Note: Since, there is no provision of interest on drawings in the partnership deed so we will not provide it.

Calculation of Opening Capital of the Partners: 

Note: Interest on Capital is always computed on the opening capitals.

Mohit and Sobhit are partners sharing profits in the ratio of 3 : 2. Rohit was admitted for 1/6th share of profit with a minimum guaranteed amount of  ` 10,000. At the close of the first financial year the firm earned a profit of  ` 54,000. Find out the share of profit which Mohit, Sobhit and Rohit will get.

Working Note

Rohit will get higher of the two:

(i) Share of Profit as per profit sharing ratio, i.e., 54,000×1/6==9,000

(ii) Minimum guaranteed profit, i.e. ` 10,000
Thus from net profit of ` 54,000, minimum guaranteed profit to Rohit of ` 10,000 is to be adjusted first.

And the balance profit of ` 44,000 (54,000 – 10,000) is to be shared by Mohit and Sobhit in the ratio 3:2

final share:

Mohit’s share =44,000×3/5=26,400

Sobhit’s share =44,000×2/5=17,600

Rohit’s share =10,000 (minimum guarantee)

A, B and C were in partnership sharing profits and losses in the ratio of 4 :2 : 1. It was provided that Cs share in profit for a year would not be less than `75,000. Profit for the year ended 31st March, 2022 amounted to  `3,15,000. You are required to show the appropriation among the partners. The Profit and Loss Appropriation Account is not required.

Minimum Earnings Guaranteed by a Partner

Working notes;

Note; initial profit distributed 3000 in 4;2 or 2:1 in the absence of any information in the question No profit and loss a/c is required we can appropriate as below;

Appropriation of profit

X, Y and Z entered into partnership on 1st October, 2021 to share profits in the ratio of 4 : 3 : 3. X, personally guaranteed that Z's share of profit after charging interest on capital @ 10% p.a. would not be less then  ` 80,000 in any year. Capital contributions were: X –  ` 3,00,000, Y –  ` 2,00,000 and Z –  ` 1,50,000.
Profit for the year ended 31st March, 2022 was  ` 1,60,000. Prepare Profit and Loss Appropriation Account.

Note: Since Z is admitted on 1^st October, 2021 and Profit is ascertained on March 31, 2022, therefore, interest on capital is calculated for 6 months and guaranteed amount is considered as ` 40,000 (half of the total amount).