12th | Accounting for Partnership Firm – Fundamental | Question No. 81 To 85 | Ts Grewal Solution 2023-2024

X, Y and Z entered into partnership on 1st October, 2022 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, 2023 was  ` 1,60,000. Prepare Profit and Loss Appropriation Account.

Answer:

Profit and Loss Appropriation Account for the year ended March 31, 2023
Dr.				Cr.
Particulars		( `)	Particulars	( `)
Interest on Capital:			Net Profit b/d	1,60,000
X’s Capital a/c	15,000
Y’s Capital a/c	10,000
Z’s Capital a/c	7,500	32,500
Profit transferred to:
X (51,000 – 1,750)	49,250
Y (38,250)	38,250
Z (38,250 + 1,750)	40,000	1,27,500
		1,60,000		1,60,000

Note: Since Z is admitted on 1^st October, 2022 and Profit is ascertained on March 31, 2023, therefore, interest on capital is calculated for 6 months and guaranteed amount is considered as ` 40,000 (half of the total amount).

 

A, B and C are partners sharing profits in the ratio of 5 : 4 : 1. C is given a guarantee that his minimum share of profit in any given year would be at least  ` 50,000. Deficiency, if any, would be borne by A and B equally. Profit for the year ended 31st March 2023 was  ` 4,00,000.
Pass necessary Journal entries in the books of the firm.

Answer:

Profit and Loss Appropriation Account for the year ended 2023
Dr.				Cr.
Particulars		( `)	Particulars	( `)
Profit transferred to:			Profit and Loss A/c (Net Profit)	4,00,000
A’s Capital A/c	1,95,000
B’s Capital A/c	1,55,000
C’s Capital A/c	50,000	4,00,000
		4,00,000		4,00,000

Working Notes:

Profit for the year = ` 4,00,000

Profit sharing ratio = 5 : 4 : 1

C is given a guarantee of minimum profit of ` 50,000

A’s profit share =4,00,000×5/10=2,00,000

B’s profit share =4,00,000×4/10=1,60,000

C’s profit share =4,00,000×1/10=40,000

Deficiency in C’s share = 5,000 ` 4,000 = ` 1,000

This deficiency is to be borne by A and B equally.

Deficiency is to be borne by A=10,000×1/2=5,000

Deficiency is to be borne by B=10,000×1/2=5,000

Therefore,

Final Profit Share of A = 2,00,000 – 5,000 = ` 1,95,000

Final Profit Share of B = 1,60,000 -5,000 = ` 1,55,000

Final Profit Share of C = 40,000 + 10,000 = ` 50,000

 

Prepare Profit & Loss Appropriation Account for the year.

Answer:

Profit & Loss Appropriation A/c
Particulars	`	Particulars	`
To Bipul’s Capital A/C (Salary)	1,20,000	By Profit and loss a/c	6,60,000
To Profit transferred to:		(Profit)
Atul’s Capital A/c	1,70,000
Bipul’s Capital A/c	2,00,000
Charu’s Capital A/c	1,70,000
	6,60,000		6,60,000

Working Notes:

Profit after Bipul’s salary = 6,60,000 -1,20,000

Divisible Profit = 5,40,000

Share of Profits mas per profit sharing ratio 1:1:1

= 5,40,000÷3= 1,80,000

Guarantee of profit = 2,00,000

Deficiency of profit =2,00,000-1,80,000= 20,000

Deficiency of profit will be adjusted by Atul and Charu in 1:1

= 20,000÷2=10,000

Adjustment Table of Profit
Partner	Atul	Bipul	Charu
Share of Profits mas per profit sharing ratio 1:1:1	1,80,000	1,80,000	1,80,000
Adjustment of Profit	(-) 10,000	(+) 20,000	(-) 10,000
Final share of profit	1,70,000	2,00,000	1,70,000

 

 

Net Profit for the year ended 31st March, 2023 is ` 2,50,000.

Prepare Profit & Loss Appropriation Account for the year.

Answer:

Profit & Loss Appropriation A/c
Particulars	`	Particulars	`
To Kaushal’s Capital A/c	50,000	By Profit and loss a/c	2,50,000
(commission)		(Profit)
To Parul’s Capital A/c	2,00,000
(Profit transferred)
	2,50,000		2,50,000

Working Notes:

Share of each partner 2,00,000÷3=66,666.67

Note: Share of each partner is less than guarantee but divisible profit is equal to guarantee, hence whole divisible profit should be credited to parul’s Capital A/c

 

Prepare Profit & Loss Appropriation Account for the year.

Answer:

Profit & Loss Appropriation A/c
Particulars	`	Particulars		`
To Nimrat’s Capital A/c	1,60,000	By Profit and loss a/c		1,00,000
(Profit transferred)		(Profit)
		By Loss transferred to;
		Maira’s Capital A/c	40,000
		Kabir’s Capital A/c	20,000	60,000
	2,50,000			2,50,000

 

Note: Loss will be born by Maira and Kabirin  2:1, Since Nimrat is guaranteed minimum share of profit of 1,60,000.

Maira = 60,000×2÷3=40,000

Kabir = 60,000×1÷3=20,000