Prepare Profit & Loss Appropriation Account for the year.

Answer:

	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 Ashmitand Karmanin  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: 2021 Profit  ` 1,20,000 2022 Profit  ` 1,80,000; 2023 Loss  `1,20,000.
Pass the necessary Journal entries in the books of the firm.

Answer:

Journal
Date	Particulars		L.F.	Debit  (`)	Credit  (`)
2021	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)
2023	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 2021

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 2022, 

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 2023,

 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.

Prepare Profit & Loss Appropriation Account of P, Q and R for the year ended 31st March, 2023.

Answer:

Profit & Loss Appropriation A/c
Particulars	Rs.	Particulars	Rs.
To profit transferred to;	4,00,000	By Profit & Loss A/c	4,00,000
P’s capital A/c
Q’s capital A/c
R’s capital A/c
	4,00,000		4,00,000

1. Share profit according to profit sharing ratio

Profit share of R 4,00,000×1/8=50,000

Share of P and Q in remaining profit 4,00,000-50,000=3,50,000

P’s share= 3,50,000×5/8=2,18,750

Q’s share= 3,50,000×3/8=1,31,250

 

2. Deficiency of profit

R’s Deficiency is the share of profit 75,000-50,000=25,000

 

3. Deficiency shared as follow by P and Q in 3:2

P=25,000×3/5=15,000

Q=25,000×2/5=10,000

 

4. Adjustment table of guarantee profit

	P	Q	R
Profit as per ratio	2,18,750	1,31,250	50,000
Adjustment of guarantee	-15,000	-10,000	+25,000
	2,03,750	1,21,250	75,000

 

 

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, 2022, 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, 2023 amounted to  ` 2,25,000.

You are required to show Profit and Loss Appropriation Account for the year ended 31at March, 2023.

Answer:

Profit and Loss Appropriation Account for the year and March 31, 2023
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 1Calculation 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 2Calculation 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, 2022. 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, 2023 amounted to  ` 4,24,000.(Delhi 2013, Modified)
Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2023.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2023
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