Question

Vidhi, Manas, and Ansh were partners sharing profits and losses in the ratio of 2:3:5. Ansh was given a guarantee that his share of profits in any given year would not be less than ₹ 1,20,000. Deficiency, if any, would be borne by Vidhi and Manas equally. Profits for the year ended 31st March, 2024, amounted to ₹ 2,00,000.

Pass necessary journal entries in the books of the firm for the division of profits.

Answer 1

Journal Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2024
March 31	Profit and Loss A/c   ...Dr.		2,00,000	−
	To Profit and Loss Appropriation A/c		−	2,00,000
	(Being net profit transfers to profit and loss appropriation account)
	Profit and Loss Appropriation A/с   ...Dr.		2,00,000	−
	To Vidhi’s Capital A/с		−	40,000
	To Manas’s Capital A/с		−	60,000
	To Ansh’s Capital A/c		−	1,00,000
	(Being the distribution of profit)
	Vidhi’s Capital A/c   ...Dr.		10,000	−
	Manas’s Capital A/c   ...Dr.		10,000	−
	To Ansh’s Capital A/c		−	20,000
	(Being the deficiency of Arsh, net by Vidhi are Manas’s equally.)

Working Notes:

Profit for the year = ₹ 2,00,000

Ansh’s share of profit = `2,00,000 xx 5/10`

= 21,00,000

The ₹ 20,000 shortfall in Ansh’s share of profit is to be shared equally by Vidhi and Manas. Therefore, the profit share of both Vidhi and Manas will be reduced by ₹ 10,000 each.