Question

Radha, Mary and Fatima are partners sharing profits in the ratio of 5:4:1. Fatima is given a guarantee that her share of profit, in any year will not be less than Rs 5,000. The profits for the year ending March 31, 2020 amount to Rs 35,000. If any, a shortfall in the profits guaranteed to Fatima is to be borne by Radha and Mary in the ratio of 3:2. Record necessary journal entries to show profit distribution among partners.

Answer 1

Dr.					Profit and Loss Appropriation Account					Cr.
Particulars					Amount Rs	Particulars				Amount Rs
Profit transferred to						Profit and Loss				35,000
Radha’s Capital				17,500	16,600
Less: Fatima’s Deficiency {1,500 × (3/5)}				(900)
Mary’s Capital				14,000	13,400
Less: Fatima’s Deficiency {1,500 × (2/5)}				(600)
Fatima’s Capital		3,500			5,000
Add: Deficiency born by
Radha				900
Mary				600
					35,000					35,000

 

Journal Entry
Date	Particulars	L.F.	Debit Amount Rs	Credit Amount Rs
	Profit and Loss Appropriation A/c        ...Dr.		35000
	To Radha’s  Capital A/c			16600
	To Mary’s Capital A/c			13400
	To Fatima’s Capital A/c			5000
	(Profit distributed among Partners)

Alternative Method

Journal Entry
Date	Particulars	L.F.	Debit Amount Rs	Credit Amount Rs
	Profit and Loss Appropriation A/c        ...Dr.		35000
	To Radha’s Capital A/c			17500
	To Mary’s Capital A/c			14000
	To Fatima’s Capital A/c			3500
	(Profit distributed among Partners)
	Radha’s Capital A/c                   Dr.		900
	Mary’s Capital A/c                   Dr.		600
	To Fatima’s Capital A/c			1500
	(Deficiency of Fatima’s Share taken from Radha and Mary)