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Question 85 Chapter 2 of +2-A
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85. 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 2018, 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 2019 amounted to 2,25,000. You are required to show Profit and Loss Appropriation Account for the year ended 31at March 2019.
The solution of Question 85 Chapter 2 of +2-A:
| Balance Sheet (for the year ended 31st March 2019) | |||||
| Liabilities | Amount | Assets | Amount | ||
| By Profit and Loss A/c | 2,25,000 | ||||
| To Profit Transferred to *2 | |||||
| A’s Capital A/c | 96,750 | ||||
| B’s Capital A/c | 72,000 | ||||
| C’s Capital A/c | 56,250 | 2,25,000 | |||
| 2,25,000 | 2,25,000 | ||||
Working Note: –
*1 Calculation 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 = Rs 1,98,000
| Commission to C | 1,98,000 | X | 10 |
| 100 + 10 |
| Commission to C | 1,98,000 | X | 10 |
| 110 |
Commission to C =18,000
| C’s remuneration as Manager | = | Salary | + | Commission |
| = | 27,000 | + | 18,000 | |
| = | 45,000 |
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Calculation of distribution of Profits among the partners
| Profit for 2019 | = | 2,25,000 | |
| C’s Profit share | = | 1/4th of a firm’s profit |
| C’s Share of Profit | = 2,25,000 | X | 1 |
| 4 |
C’s Share of Profit= 56,250
Remaining Profit for remaining partner2,25,000 − 45,000 = Rs 1,80,000
| A’s Share of Profit | = 1,80,000 | X | 3 |
| 5 |
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A’s Share of Profit= 1,08,000
| B’s Share of Profit | =1,80,000 | X | 2 |
| 5 |
B’s Share of Profit= 72,000
Part of C’s Profit Share to be borne by A= 56,250 − 45,000 = Rs 11,250
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.
A’s Share of Profit= 1,08,000 – 11,250 = 96,750
Also, Check out the solved question of previous Chapters: –
T.S. Grewal’s Double Entry Book Keeping +2 (Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms)
- Chapter No. 1 – Financial Statement of Not-For-Profit Organisations
- Chapter No. 2 – Accounting for Partnership Firms – Fundamentals
- Chapter No. 3 – Goodwill: Nature and Valuation
- Chapter No. 4 – Change in Profit-Sharing Ratio Among the Existing Partners
- Chapter No. 5 – Admission of a Partner
- Chapter No. 6 – Retirement/Death of a Partner
- Chapter No. 7 – Dissolution of a Partnership Firm
T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)
- Chapter No. 8 – Company Accounts – Accounting for Share Capital
- Chapter No. 9 – Company Accounts – Issue of Debentures
- Chapter No. 10 – Redemption of Debentures
T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)
- Chapter No. 1 – Financial Statements of a Company
- Chapter No. 2 – Financial Statement Analysis
- Chapter No. 3 – Tools of Financial Statement Analysis – Comparative Statements and Common- Size Statements
- Chapter No. 4 – Accounting Ratios
- Chapter No. 5 – Cash Flow Statement
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