Question 80 Chapter 2 of +2-A
80. A B and C are partners in a firm. Their profit-sharing ratio is 2: 2: 1. C is guaranteed a minimum of 10,000 as a share of profit every year. Any deficiency arising on that amount shall be met by B. The profits for the two years ended 31st March 2018 and 2019 were 40,000 and 60,000 respectively. Prepare Profit and Loss Appropriation Account for the two years.
Balance Sheet (for the year ended 31st March 2019)
| Liabilities |
Amount | Assets |
Amount | ||
|---|---|---|---|---|---|
| By Profit and Loss A/c | 40,000 | ||||
| To Profit Transferred to *2 | |||||
| A's Capital A/c | 16,000 | ||||
| B's Capital A/c | 14,000 | ||||
| C's Capital A/c | 10,000 | 40,000 | |||
| 40,000 | 40,000 | ||||
Balance Sheet (for the year ended 31st March 2019)
| Liabilities |
Amount | Assets |
Amount | ||
|---|---|---|---|---|---|
| By Profit and Loss A/c | 60,000 | ||||
| To Profit Transferred to *2 | |||||
| A's Capital A/c | 24,000 | ||||
| B's Capital A/c | 24,000 | ||||
| C's Capital A/c | 12,000 | 60,000 | |||
| 60,000 | 60,000 | ||||
Working Note: -
Calculation of Actual Amount of Interest on A's, B's, & C's Capital
Interest on Capital= Opening Capital X Rate of Interest
| Interest on A's Capital | = | 3,00,000 | X | 10 |
| 100 |
Interest on A's Capital = 30,000/-
| Interest on B's Capital | = | 2,00,000 | X | 10 |
| 100 |
Interest on B's Capital = 20,000/-
| Interest on C's Capital | = | 1,50,000 | X | 10 | X | 6 |
| 100 | 12 |
Since Z is admitted on 1st October 2018 and Profit is ascertained on March 31, 2019, therefore, interest on capital is calculated for 6 months
Interest on Z's Capital = 7,500 /-
Calculation of distribution of Profits for the year 2017-18 among the partners
Profit for 2018 = 40,000
Profit-sharing ratio = 2 : 2 : 1
C is given a guarantee of a minimum profit of Rs 10,000
| A's Share of Profit | = | 40,000 | X | 2 |
| 5 |
A's Share of Profit = 16,000
| Y's Share of Profit | = | 40,000 | X | 2 |
| 5 |
Y's Share of Profit= 16,000
| C's Share of Profit | = | 40,000 | X | 1 |
| 5 |
C's Share of Profit= 8,000
C's Actual Profit Share i. e. Rs 8,000 is less than his Minimum Guaranteed Profit i. e. Rs 10,000
Deficiency in C's Profit Share= 10,000 − 8,000= Rs 2,000
This deficiency is to be borne by B because he personally guaranteed it.
Now, Final distributed among the partners
| A's Share of Profit | = | 16,000 | - | 0 | =16,000 |
| B's Share of Profit | = | 16,000 | - | 2,000 | =14,000 |
| C's Share of Profit | = | 38,250 | + | 2,000 | =10,000 |
Calculation of distribution of Profits for the year 2017-18 among the partners
Profit for 2018 = 60,000
Profit-sharing ratio = 2 : 2 : 1
C is given a guarantee of a minimum profit of Rs 10,000
| A's Share of Profit | = | 60,000 | X | 2 |
| 5 |
A's Share of Profit = 24,000
| B's Share of Profit | = | 60,000 | X | 2 |
| 5 |
B's Share of Profit = 24,000
| C's Share of Profit | = | 60,000 | X | 2 |
| 5 |
C's Share of Profit = 12,000
This deficiency(if any) is to be borne by B, but in the year 2017-18 there is no deficiency
Also, Check out the solved question of previous Chapters: -
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Accounting & Commerce Educator
Sarbjit Singh holds a B.Com and M.Com degree and has over 12 years of teaching experience in double entry bookkeeping, financial accounting, and business studies.
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