Question 86:

 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, 2025, 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, 2026 amounted to  ₹ 2,25,000.

You are required to show Profit and Loss Appropriation Account for the year ended 31at March, 2026.

Answer:

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 =  45,000 =2,25,000 ₹ 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

 

Question 87:

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)

Answer:

Working Notes:

 

 

Question 88:

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)

Answer:

 

Working Notes:

WN1: Profit & Loss Appropriation A/c

 

WN2: Statement Showing Adjustment

 

Question 89:

Ankur, Bhavns and Disha are partners in a firm. On 1st April, 2025, 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, 2026 amounted to  ₹ 9,50,000.
Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2026.

Answer:

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

 

Minimum Earnings Guaranteed by a Partner

Question 90: Xen, Sam and Tim are partners in a firm. For the year ended 31st March, 2026, the profit of the firm 12,00,000 was distributed equally among them, without giving effect to the following terms of the partnership Deed:

(i) Sam's guarantee to the firm that the firm would earn a profit of at least 1,35,000. Any shortfall in these profits would met by him.

(ii) Profits to be shared in the ratio of 2:2 :1.

You are required to pass the necessary Journal entries to rectify the error in accounting.

Answer: