Question

A, B, and C are partners sharing profits in the ratio of 4 : 3 : 2. It was provided that B’s share of profit will not be less than ₹ 1,50,000 per annum. The losses for the year ended 31st March, 2024, were ₹ 85,000 before allowing interest on a loan of ₹ 1,00,000 taken from A on 1st June, 2023.

You are required to show the necessary account for the division of loss and pass the necessary journal entries.

Answer 1

Dr.	Profit and Loss Account for the year ending on 31st March, 2024				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Loss before interest		85,000	By Net Loss transferred to:		90,000
To Interest on A’s Loan		5,000	A’s Capital A/c	40,000
			B’s Capital A/c	30,000
			C’s Capital A/c	20,000
		90,000			90,000

 

Journal Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2024
March 31	Interest on A’s Loan A/c   ...Dr.		5,000	-
	To A’s Loan A/c		-	5,000
	(Being interest on A’s loan provided for the year.)
March 31	Profit and Loss A/c   ...Dr.		5,000	-
	To Interest on A’s Loan A/c		-	5,000
	(Being interest on A’s loan transferred to Profit and Loss A/c.)
March 31	A’s Capital A/c   ...Dr.		40,000	-
	B’s Capital A/c   ...Dr.		30,000	-
	C’s Capital A/c   ...Dr.		20,000	-
	To Profit and Loss A/c		-	90,000
	(Being loss of ₹ 1,85,000 distributed among partners in the ratio of 4 : 3 : 2.)
March 31	A’s Capital A/c   ...Dr.		1,20,000	-
	C’s Capital A/c   ...Dr.		60,000	-
	To B’s Capital A/c		-	1,80,000
	(Being deficiency in B’s share made good by A and C in the ratio of 4 : 2.)

Working Note:

A’s Share of Loss = `90,000 × 4/9`

= ₹ 40,000

B’s Share of Loss = `90,000 × 3/9`

= ₹ 30,000

C’s Share of Loss = `90,000 × 2/9`

= ₹ 20,000

B is guaranteed a minimum profit of ₹ 1,50,000, whereas the share of the loss debited to his capital account is ₹ 30,000. Hence, he will be credited by 1,80,000 (i.e., 1,50,000 + 30,000) borne by Anil and Sunil in their profit-sharing ratio of 4 : 2).

A’s Share to B = `1,80,000 × 4/6`

= ₹ 1,20,000

C’s Share to B =  `1,80,000 × 2/6`

= ₹ 60,000