12th | Accounting For Partnership Firms Fundamentals | Question No.  81 To 85 | Solution 2022-2023

Prepare Profit & Loss Appropriation Account for the year.

	Profit & Loss Appropriation A/c
Particulars		`	Particulars		`
To Profit and loss a/c		30,000
(Loss transferred from P&L account)
To Abbas’s Capital A/c		1,50,000	By Loss transferred to;
(Profit transferred)			Ashmit’s Capital A/c	1,35,000
			Karman’s Capital A/c	45,000	1,80,000
		1,80,000			1,80,000

 

Working notes:

Note: Loss will be borne by Ashmit and Karman in  3:1, Since Abbas is guaranteed minimum share of profit of 1,50,000.

Ashmit = 1,80,000×3÷4= 1,35,000

Karman = 1,80,000×1÷4= 45,000

 

P, Q and R entered into partnership on 1st April, 2018 to share profits and losses in the ratio of 12 : 8 : 5. It was provided that in no case R's share in profit be less then  ` 30,000 p.a. The profits and losses for the period ended 31st March were: 2020 Profit  ` 1,20,000 2021 Profit  ` 1,80,000; 2022 Loss  `1,20,000.
Pass the necessary Journal entries in the books of the firm.

Journal
Date	Particulars		L.F.	Debit  (`)	Credit  (`)
2020	P’s Capital A/c	Dr.		3,600
	Q’s Capital A/c	Dr.		2,400
	To R’s Capital A/c				6,000
	(Deficiency adjusted)
2022	P’s Capital A/c	Dr.		32,400
	Q’s Capital A/c	Dr.		21,600
	To R’s Capital A/c				54,000
	(Deficiency adjusted)

 

Working Notes:

WN1: Calculation of amount of deficiency of R
R's Minimum Guaranteed Profit = ` 30,000 for 2020

R's actual share of profit = 1,20,000 ×12/25=` 24,000

Deficiency in R's Profit = 30,000 - 24,000 = ` 6,000

This deficiency is to be borne by P & Q in the ratio of 12:8.For 2021, 

R's actual share of profit = 1,80,000×8/25=` 36,000

This implies that there is no deficiency in R's profit share as his actual share exceeds his minimum guaranteed share. For 2022,

 R's share of loss = 1,20,000×5/25=` 24,000

Deficiency in R's Profit = 30,000 + 24,000 = ` 54,000

This deficiency is to be borne by P & Q in the ratio of 12:8.

A and B are in partnership sharing profits and losses in the ratio of 3 : 2. They admit C, their Manager, as a partner with effect from 1st April, 2021, for 1/4th share of profits.
C, while a Manager, was in receipt of a salary of  ` 27,000 p.a. and a commission of 10% of the net profits after charging such salary and commission.
In terms of the Partnership Deed, any excess amount, which C will be entitled to receive as a partner over the amount which would have been due to him if he continued to be the manager, would have to be personally borne by A out of his share of profit. Profit for the year ended 31st March, 2022 amounted to  ` 2,25,000. You are required to show Profit and Loss Appropriation Account for the year ended 31at March, 2022.

Profit and Loss Appropriation Account for the year and March 31, 2022
Dr.				Cr.
Particulars		( `)	Particulars	( `)
Profit transferred to:			Profit and Loss A/c	2,25,000
A’s Capital A/c	96,750
B’s Capital A/c	72,000
C’s Capital A/c	56,250	2,25000
		2,25000		2,25000

Working Notes:

WN 1 Calculation of Remuneration to C as a Manager

Salary to C = ` 27,000

Commission to C = 10% of Net Profit after Salary and Commission

Net Profit after Salary and Commission = 2,25,000- 27,000 = ` 1,98,000

C’s commission = 1,98,000×10/110=18,000

C’s remuneration as Manager = Salary + Commission = 27,000 + 18,000 = ` 45,000

WN 2 Calculation of Profit Share of C as a Partner

Profit = ` 2,25,000

C’s profit share = 2,25,000×1/4=56,250

Part of C’s Profit Share to be borne by A = 56,250 -` 45,000 = ` 11,250

Profit available for distribution between A and B = 2,25,000 - 45,000 = ` 1,80,000

A’s profit share = 1,80,000×3/5=1,08,000

C’s profit share = 1,80,000×2/5=72,000

A’s Profit share after adjusting C’s deficiency = 1,08,000- ` 11,250 = ` 96,750

 

Asgar, Chaman and Dholu are partners in a firm. Their Capital Accounts stood at  ` 6,00,000;  ` 5,00,000 and  ` 4,00,000 respectively on 1st April, 2021. They shared Profits and Losses in the proportion of 4 : 2 : 3. Partners are entitled to interest on capital @ 8% per annum and salary to Chaman and Dholu @  ` 7,000 per month and  ` 10,000 per quarter respectively as per the provision of the Partnership Deed. Sholu's share of profit (excluding interest on capital but including salary) is guaranteed at a minimum of ` 1,10,000 p.a. Any deficiency arising on that account shall be met by Asgar. The profit for the year ended 31st March, 2021 amounted to  ` 4,24,000. (Delhi 2013, Modified)
Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2022.

Profit and Loss Appropriation Account for the year ended March 31, 2022
Dr.				Cr.
Particulars		`	Particulars	`
Interest on Capital to:			Profit and Loss A/c (Net Profit)	4,24,000
Asgar’s Capital A/c	48,000
Chaman’s Capital A/c	40,000
Dholu’s Capital A/c	32,000	1,20,000
Salary to Chaman (` 7,000 × 12)		84,000
Salary to Dholu (` 10,000 × 4)		40,000
Profit transferred to:
Asgar’s Capital A/c	70,000
Chaman’s Capital A/c	40,000
Dholu’s Capital A/c	70,000	1,80,000
		4,24,000		4,24,000

Working Notes:

Profit available for distribution =  4,24,000 – (1,20,000 + 84,000+ 40,000) = ` 1,80,000
Profit sharing ratio = 4 : 2 : 3

Asgar’s profit share = 1,80,000×4/9=80,000

Chaman’s profit share = 1,80,000×2/9=40,000

Dhalu’s profit share = 1,80,000×3/9=60,000

Dholu’s Minimum Guaranteed Profit = ` 1,10,000 (excluding interest on capital, but including salary)
Dholu’s Minimum Guaranteed Profit (excluding salary) = 1,10,000 – 40,000 = ` 70,000
But, Dholu’s Actual Profit Share = ` 60,000
Deficiency in Dholu’s Profit Share = 70,000 – 60,000 = 10,000
This deficiency is to be borne by Asgar alone.
Therefore,
Asgar’s New Profit Share =  80,000 – 10,000 = ` 70,000

 

The partners of a firm, Alia, Bhanu and Chand distributed the profits for the year ended 31st March, 2017,  ` 80,000 in the ratio of 3 : 3 : 2 without providing for the following adjustments:
(a) Alia and Chand were entitled to a salary of  ` 1,500 each p.a.
(b) Bhanu was entitled for a commission of  ` 4,000.
(c) Bhanu and Chand had guaranteed a minimum profit of  ` 35,000  p.a. to Alia any deficiency to borne equally by Bhanu and Chand.

Pass the necessary Journal entry for the above adjustments in the books of the firm. Show workings clearly. (CBSE Sample paper 2018)

In the books of Mudit, Sudhir and Uday Journal
Date	Particulars		L.F.	Debit ( `)	Credit ( `)
2017
March 31	Bhanu’s Capital A/c	Dr.		21,000
	Chand’s Capital A/c	Dr.		2,000
	To Alia’s Capital A/c				23,000
	(Being adjustment entry passed for rectification of errors)

Working Notes:

Table Showing Adjustment
Particulars	Alia’s Capital A/c		Bhanu’s Capital A/c		Chand’s Capital A/c		Firm
	Dr. ( `)	Cr. ( `)	Dr. ( `)	Cr. ( `)	Dr. ( `)	Cr. ( `)	Dr. ( `)	Cr. ( `)
Profits wrongly Distributed (Dr.)	30,000		30,000		20,000			80,000
Salary to be provided (Cr.)		18,000				18,000	36,000
Commission to be provided (Cr.)				4,000			4,000
Profits correctly distributed		35,000		5,000		Nil	40,000
Balance to be adjusted	23,000(Cr.)		21,000(Dr.)		2,000(Dr.)		Nil

 

Divisible Profits	=	Profits before appropriation – (Salary + Bhanu’s Commission)
	=	` [80,000 – (36,000 + 4,000)] =  ` 40,000
Alia’s Share of Profits	=	` (40,000 × 3/8) = 15,000
Deficiency in Alia’s Share of Profits	=	` (35,000 – 15,000) =  ` 20,000 (To be borne by Bhanu and Chand in 1:1)
Alia’ final share of Profits	=	` 35,000
Bhanu’s final share of Profits	=	` [(40,000 × 3/8) – 10,000] =  ` 5,000
Chand’s final share of Profits	=	` [(40,000 × 2/8) – 10,000] = Nil