Question

Ali, Bimal and Deepak are partners in a firm. On 1st April 2011 their capital accounts stood at Rs 4,00,000, Rs 3,00,000 and Rs 2,00,000 respectively. They shared profits and losses in the proportion of 5 : 3: 2. Partners are entitled to interest on capital @10% per annum and salary to Bimal and Deepak @ Rs 2,000 per month and Rs 3,000 per quarter respectively as per the provisions of the partnership deed. Bimal's share of profit (excluding interest on capital but including salary) is guaranteed at a minimum of Rs 50,000 p.a. Any deficiency arising on that account shall be met by Deepak. The profits of the firm for the year ended 31st March 2012 amounted to Rs 2,00,000. Prepare Profit & Loss Account for the year ended on 31st March 2012.

Answer 1

Profit and Loss Appropriation Account
Dr.			Cr.
Particulars	Rs	Particulars	Rs
To Interest on capital A/c   Ali           40,000  Bimal       30,000  Deepak    20,000 To Salary to:   Bimal A/c        24,000   Deepak A/c     12,000 To Profit transferred to:    Ali's Capital A/c     37,000    Bimals's Capital A/c     (22,200 + 3,800)            26,000    Deepak's Capital A/c    (14,800 – 3,800)            11,000	90,000     36,000           74,000	By Profit and Loss A/c	2,00,000
	2,00,000		2,00,000

Working Notes:

Profit available for distribution = 2, 00,000 – (90,000 + 36,000) = 74,000

Profit Sharing Ratio = 5:3:2

Ali's Profit Share = `74000 xx 5/10 = 37000`

Bimal's Profit Share =`74000 xx 3/10 = 22200`

Deepak's Profit Share = `74000 xx 2/10 = 14800`

Bimals'Minimum Guaranteed Profit = 50,000 (exculding interest but including salary)

∴Bimal's Minimum Guraranted Profit (excluding salary) = 50000 - 24000 = 26000

But , Bimal's Actual Profit Share = 22,200

Deficiency in Bimal's Share = 26,000 - 22,200 = 3,800

This Deficiency is to be borne by Deepak alone

Therefore,

Deepak's New Profit Share = 14,800 - 3,800 = 11,000