Question

Aakash and Baadal entered into partnership on 1^st October, 2023 with the capitals of ₹ 80,00,000 and ₹ 60,00,000 respectively. They decided to share profits and losses equally. Partners were entitled to interest on capital @ 10% per annum as per the provisions of the partnership deed.

Baadal is given a guarantee that his share of profit, after charging interest on capital will not be less than ₹ 7,00,000 per annum.

Any deficiency arising on that account shall be met by Aakash. The profit of the firm for the year ended 31^st March, 2024 amounted to ₹ 13,00,000.

Prepare Profit and Loss Appropriation Account for the year ended 31^st March, 2024.

Answer 1

Dr.	Profit and Loss Appropriation Account for the year ended 31st March, 2024		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Interest on Capital		By Net Profit A/c	13,00,000
Aakash’s Capital (₹ 80,00,000 × 10% × `6/12`)	40,00,000
Baadal’s Capital (₹ 60,00,000 × 10% × `6/12`)	30,00,000
To Profit transferred
Aakash’s Capital (3,00,000 – 50,000)	2,50,000
(Deficiency met)
Baadal’s Capital (3,00,000 + 50,000)	3,50,000
(Deficiency received from Aakash)
	13,00,000		13,00,000

Working Note:

1. Baadal is given a guarantee of ₹ 7,00,000 per annum

Guarantee from 1^st Oct, 2023 to 31^st March, 2024

`(₹ 7,00,000)/2`  

= ₹ 3,50,000

2. Deficiency met by Aakash:

Guaranteed Amount – Actual Share of Profit of Baadal

₹ 3,50,000 – `(₹ 6,00,000xx1/2)`

₹ 3,50,000 – ₹ 3,00,000 

= ₹ 50,000