12th class

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, 2024, 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, 2025 amounted to  ` 2,25,000.

You are required to show Profit and Loss Appropriation Account for the year ended 31at March, 2025.

Profit and Loss Appropriation Account for the year and March 31, 2025
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 =  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

 

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

 

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, 2024, 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, 2025 amounted to  ` 9,50,000.
Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2025.

Profit and Loss Appropriation Account for the year ended March 31, 2025
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

 

Mininum Earnings Guaranteed by a Partner

Three Chartered Accountants Abhijit, Baljit and Charanjit form a partnership, profits being shared in the ratio of 3 : 2 : 1 subject to the following:
(a) Charanjitshare of profit guaranteed to be not less than  ` 15,000 p.a.
(b) Baljit 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 Baljit 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	75,000
Abhijit’s Capital A/c	41,400		(Net Profit)
Baljits Capital A/c	27,600		B’s Capital A/c
Charanjits Capital A/c	15,000	84,000	(Deficiency in Revenue)	9,000
		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

Abhijits profit share=84,000×3/6=42,000

Baljit’s profit share=84,000×2/6=28,000

Charanjit’s profit share=84,000×1/6=14,000

Charanjit 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  600 = of A = 42,000  `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.

 

(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.

JOURNAL
Date	Particulars		LF	Dr. (Rs.)	Cr. (Rs.)
2025	Xen's Capital A/c	Dr.		40,000
	Sam's Capital A/c	Dr.		40,000
	Tim's Capital A/c	Dr.		40,000
	To Profit & Loss Adjustment A/c				1,20,000
	(Profit wrongly distributed now reversed)
	Sam's Capital A/C	Dr.		15,000
	To Profit & Loss Adjustment A/c				15,000
	(For Shortfall in Profit)
	Profit & Loss Adjustment A/c	Dr.		1,35,000.
	To ×en's Capital				54,000
	To Sam's Capital A/c				54,000
	To Tim's Capital A/c				27,000
	(For Rectified Profit Distributed (2: 2:1): )