Question

A, B, and C are partners in a firm sharing profits in the ratio of 2 : 2 : 1. According to the terms of the partnership agreement, C has to get a minimum of ₹ 6,000, irrespective of the profits of the firm. Any excess payable to C on account of such guarantee shall be borne by A. Profits earned during the year ended 31st March, 2024, were ₹ 25,000. Pass journal entries in the books of the firm.

Answer 1

Journal Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Profit and Loss A/c   ...Dr.		25,000	-
	To Profit and Loss Appropriation A/c		-	25,000
	(Profit transferred to Profit and Loss Appropriation A/c)
2.	Profit and Loss Appropriation A/c   ...Dr.		25,000	-
	To A’s Capital A/c		-	9,000
	To B’s Capital A/c		-	10,000
	To C’s Capital A/c		-	6,000
	(Profit credited to Partners in their profit-sharing ratio)

Working Note:

Calculation of partner’s share of profit:

Profit-sharing ratio of A, B and C = 2 : 2 : 1

Total Profit = ₹ 25,000

1. Normal Share of Profit:

A’s Share = `25,000 xx 2/5`

= 10,000

B’s Share = `25,000 xx 2/5`

= 10,000

C’s Share = `25,000 xx 1/5`

= 5,000

2. Adjustment of Guarantee:

C is guaranteed ₹ 6,000.

Normal Share of C = ₹ 5,000

Guaranteed Amount = ₹ 6,000

Deficiency = 6,000 − 5,000

= 1,000

As per the agreement, the deficiency is borne by A.

3. Final Share of Profit:

A’s Final Share = 10,000 − 1,000

= ₹ 9,000

B’s Final Share = ₹ 10,000

C’s Final Share = 5,000 + 1,000

= ₹ 6,000