12th | Accounting For Partnership Firms Fundamentals | Question No.  86 To 88 | Solution 2022-2023

Ajay, Binay and Chetan were partners sharing profits in the ratio of 3 : 3 : 2. The Partnership Deed provided for the following:
(i) Salary of  ` 2,000 per quarter to Ajay and Binay.
(ii) Chetan was entitled to a commission of  ` 8,000
(iii) Binay was guaranteed a rofit of  ` 50,000 p.a.
The profit of the firm for the year ended 31st March, 2015 was `1,50,000 which was distributed among Ajay, Binay and Chetan in the ratio of 2 : 2 : 1, without taking into consideration the provisions of Partnership Deed. Pass necessary rectifying entry for the above adjustments in the books of the firm. Show your workings clearly. (Delhi 2016 C)

Journal
Date	Particulars		L.F.	Debit  (`)	Credit  (`)
	Ajay’s Capital A/c	Dr.		6,400
	Binay’s Capital A/c	Dr.		2,000
	To Chetan’s Capital A/c				8,400
	(Adjustment entry made)

 

Working Notes:

WN1: Profit & Loss Appropriation A/c

Profit and Loss Appropriation Account for the year ended 31st March, 2015
Dr.						Cr.
Particulars			`	Particulars		`
Salary:				Profit and Loss A/c		1,50,000
Ajay’s Capital A/c		8,000
Binay’s Capital A/c		8,000	16,000
Chetan’s Capital A/c (Commission)			8,000
Profit transferred to:
Ajay’s Capital A/c (47,250 – 1,650)	45,600
Binay’s Capital A/c (47,250 + 2,750)	50,000
Chetan’s Capital A/c (31,500 – 1,100)	30,400		1,26,000
			1,50,000			1,50,000

 

WN2: Statement Showing Adjustment

Statement Showing Adjustment
Particulars	Ajay	Binay	Chetan	Total
Salary to be provided	8,000	8,000	-	(16,000)
Commission to be provided			8,000	(8,000)
Profit to be credited	45,600	50,000	30,400	(1,26,000)
Total	53,600	58,000	38,400	(1,50,000)
Profit already distributed	(60,000)	(60,000)	(30,000)	1,50,000
Net Effect	(6,400)	(2,000)	8,400	NIL

 

Ankur, Bhavns and Disha are partners in a firm. On 1st April, 2021, the balance in their Capital Accounts stood at  ` 14,00,000,  ` 6,00,000 and  ` 4,00,000 respectively. They shared profits in the proportion of 7 : 3 : 2 respectively. Partners are entitled to interest on capital @ 6% per annum and salary to Bhavna @  ` 50,000 p.a. and a commission of  ` 3,000 per month to Disha as per the provisions of the partnership Deed. Bhavna's share of profit (excluding interest on capital) is guaranteed at not less than  ` 1,70,000 p.a. Disha's share of profit (including interest on capital but excluding commission) is guaranteed at not less than  ` 1,50,000 p.a. Any deficiency arising on that account shall be met by Ankur. The profit of the firm for the year ended 31st March, 2022 amounted to  ` 9,50,000.
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	9,50,000
Ankur’s Capital A/c	84,000		(Net Profit)
Bhavna’s Capital A/c	36,000
Disha’s Capital A/c	24,000	1,44,000
Salary to Bhavna		50,000
Commission to Disha (` 3,000 × 12)		36,000
Profit transferred to:
Ankur’s Capital A/c	4,14,000
Bhavna’s Capital A/c	1,80,000
Disha’s Capital A/c	1,26,000	7,20,000
		9,50,000		9,50,000

Working Notes:

Profit available for distribution =  9,50,000 – (1,44,000 + 50,000 + 36,000) = ` 7,20,000
Profit sharing ratio = 7 : 3 : 2

Ankur’s profit share = 7,20,000×7/12=4,20,000

Bhavna’s profit share = 7,20,000×3/12=1,80,000

Disha’s profit share = 7,20,000×1/12=1,20,000

Bhavna’s Minimum Guaranteed Profit = ` 1,70,000 (excluding interest on capital)
But, Bhavna’s Actual Profit Share = ` 1,80,000
This implies that there is no deficiency in Bhavna’s profit share as her actual profit share (i.e. ` 1,80,000) exceeds his minimum guaranteed profit share (i.e. ` 1,70,000).
 
Disha’s Minimum Guaranteed Profit = ` 1,50,000 (including interest on capital but excluding salary)
Disha’s Minimum Guaranteed Profit (excluding interest) = 1,50,000 – 24,000 = ` 1,26,000
But, Disha’s Actual Profit Share = 1,20,000
Deficiency in Disha’s Profit Share = 1,26,000 – 1,20,000 = 6,000
This deficiency is to be borne by Ankur alone.
Therefore,
Ankur’s New Profit Share =  4,20,000 – 6,000 = ` 4,14,000

 

Three Chartered Accountants A, B and C form a partnership, profits being shared in the ratio of 3 : 2 : 1 subject to the following:
(a) C's share of profit guaranteed to be not less than  ` 15,000 p.a.
(b) B gives a guarantee to the effect that gross fee earned by him for the firm shall be equal to his average gross fee of the preceding five years when he was carrying on profession alone, which on an average works out at  ` 25,000.
The profit for the first year of the partnership are  `75,000. The gross fee earned by B for the firm is  `16,000. You are required to show Profit and Loss Appropriation Account after giving effect to the above.

Profit and Loss Appropriation Account
Dr.				Cr.
Particulars		`	Particulars	`
Profit transferred to:			Profit and Loss A/c (Net Profit)	75,000
A’s Capital A/c	41,400		B’s Capital A/c
B’s Capital A/c	27,600		(Deficiency in Revenue)	9,000
C’s Capital A/c	15,000	84,000
		84,000		84,000

Working Notes:

Deficiency in revenue guaranteed by B = 25,000 -` 16,000 = `9,000

∴Profit to be distributed among Partners = 75,000 + B’s deficiency in guaranteed interest

= 75,000 + 9,000 = `84,000

Profit sharing ratio = 3 : 2 : 1

A’s profit share=84,000×3/6=42,000

B’s profit share=84,000×2/6=28,000

C’s profit share=84,000×1/6=14,000

C is given a guarantee of minimum profit of  `15,000

Deficiency in C’s Profit Share = 15,000 - ` 14,000 = `1,000

Deficiency is to be borne by A= 1000×3/5=600

Deficiency is to be borne by b= 1000×2/5=400

Therefore, Final Profit Share of A = 42,000 - 600 = `41,400

Final Profit Share of B = 28,000 - 400 = `27,600*

Final Profit Share of C =14,000 + 1,000 = `15,000

* In the book, the final profit to B is given as `18,600, however, as per the solution it should be `27,600. The deficiency of  `9,000 that was guaranteed by B to the firm would not be deducted from his share as he is bearing it in form of profit.