Question

A, B and C are partners sharing profits in the ratio of 5 : 4 : 1. C is given a guarantee that his share of profits in any year will not be less than ₹ 20,000. The profit for the year ending 31st March 2024 amounts to ₹ 1,40,000. Amount of shortfall in the profits given to C will be borne by A and B in the ratio of 3 : 2. Pass the necessary journal entry regarding the deficiency borne by A and B.

Answer 1

Journal Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	A’s Capital A/c   ...Dr.		3,600	-
	B’s Capital A/c   ...Dr.		2,400	-
	To C’s Capital A/c		-	6,000
	(Being deficiency in C’s guaranteed profit borne by A and B in the ratio of 3 : 2 and credited to C’s Capital Account.)

Working Note:

Calculation of Partner’s Share of Profit:

Profit-sharing ratios of A, B and C = 5 : 4 : 1

Total profit = ₹ 1,40,000

1. Normal Share of Profit:

A’s Share = `1,40,000 xx 5/10`

= 70,000

B’s Share = `1,40,000 xx 4/10`

= 56,000

C’s Share = `1,40,000 xx 1/10`

= 14,000

2. Calculation of Deficiency:

C is guaranteed ₹ 20,000.

Normal Share of C = ₹ 14,000

Deficiency = 20,000 − 14,000

= ₹ 6,000

This deficiency is to be borne by A and B in the ratio of 3 : 2.

A’s Share of deficiency = `6,000 xx 3/5`

= ₹ 3,600

B’s Share of deficiency = `6,000 × 2/5`

= ₹ 2,400

3. Final Share of Profit:

A = 70,000 − 3,600

= ₹ 66,400

B = 56,000 − 2,400

= ₹ 53,600

C = 14,000 + 6,000

= ₹ 20,000