Question

A, B and C were partners sharing profits and losses in the ratio of 3 : 2 : 1. Their capitals on 1st April, 2023, were A ₹ 500,000, B ₹ 3,00,000 and C ₹ 2,00,000.

A had personally guaranteed that in any year C’s share of profit after allowing interest on capital to all partners @ 8% p.a. and charging interest on drawings @ 10% p.a. will not be less than ₹ 1,00,000.

The net profit for the year ended 31st March, 2024, before allowing or charging any interest, amounted to ₹ 4,32,000.

• A has withdrawn ₹ 5,000 at the end of every month.
• B has withdrawn ₹ 15,000 at the end of every quarter.
• C has withdrawn ₹ 60,000 during the year.

Prepare the Profit and Loss Appropriation Account for the year 2023-24.

Answer 1

Dr.	Profit and Loss Appropriation Account For the year ended on 31st March, 2016				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Interest on Capital:		80,000	By Profit and Loss A/c		4,32,000
A’s Capital A/c	40,000		By Interest on Drawings:		8,000
B’s Capital A/c	24,000		A’s Capital A/c	2,750
C’s Capital A/c	16,000		B’s Capital A/c	2,250
A’s Capital A/c	1,80,000	1,40,000	C’s Capital A/c	3,000
Less: Transferred to C	40,000
B’s Capital A/c		1,20,000
C’s Capital A/c	60,000	1,00,000
Add: Transferred from A	40,000
		4,40,000			4,40,000

Working Note:

1. Calculation of interest on drawings:

A = `60,000 xx 10/100 xx 5.5/12`

= ₹ 2,750

B = `60,000 xx 10/100 xx 4.5/12`

= ₹ 2,250

C = `60,000 xx 10/100 xx 6/12`

= ₹ 3,000

Total interest on drawings = 2,750 + 2,250 + 3,000

= ₹ 8,000

2. Net Profit after interest on Capitals and interest on Drawings = 4,32,000 + 8,000 – 80,000

= ₹ 3,60,000

A’s Share = `3,60,000 xx 3/6 `

= ₹ 1,80,000

B’s Share = `3,60,000 xx 2/6 `

= ₹ 1,20,000

C’s Share = `3,60,000 xx 1/6 `

= ₹ 60,000

Since C’s guaranteed share is ₹ 1,00,000, a deficiency of ₹ 40,000 (i.e., 1,00,000 – 60,000) will be borne by A.