Question

Ankur, Bhavna and Disha are partners in a firm. On 1st April 2023, the balance in their capital accounts stood at ₹ 14,00,000, ₹ 6,00,000 and ₹ 4,00,000, respectively. They shared profits in the proportion of 7 : 3 : 2 respectively. Partners are entitled to interest on capital @ 6% per annum and a salary to Bhavna ₹ 50,000 p.a. and a commission of ₹ 3,000 per month to Disha as per the provisions of the Partnership Deed.

Bhavna’s share of profit (excluding interest on capital) is guaranteed at not less than ₹ 1,70,000 p.a. Disha’s share of profit (including interest on capital but excluding salary) is guaranteed at not less than ₹ 1,50,000 p.a. Any deficiency arising on that account shall be met by Ankur. The profits of the firm for the year ended 31st March, 2024, amounted to ₹ 9,50,000.

Prepare a ‘Profit and Loss Appropriation Account’ for the year ended 31st March, 2024.

Answer 1

Dr.	Profit and Loss Appropriation Account for the year ended 31st March, 2024				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Interest on Capital A/c		1,44,000	By Profit and Loss A/c (Net Profit)		9,50,000
Ankur	84,000
Bhavna	36,000
Disha	24,000
To Bhavna’s Salary A/c		50,000
To Disha’s commission		36,000
To Balance c/d		7,20,000
		9,50,000			9,50,000
To Net Profit transferred to:			By Balance b/d		7,20,000
Ankur’s Capital A/c	4,20,000	4,14,000
Less: Transferred to Disha	6,000
Bhavna’s Capital A/c		1,80,000
Disha’s Capital A/c	1,20,000	1,26,000
Add: Transferred from Ankur	6,000
		7,20,000			7,20,000

Working Note:

1. Calculate Interest on Capital:

Rate = 6%

Ankur = `14,00,000 xx 6/100`

= ₹ 84,000

Bhavna = `6,00,000 xx 6/100`

= ₹ 36,000

Disha = `4,00,000 xx 6/100`

= ₹ 24,000

2. Partner’s Share of Profit (Annual Profit = ₹ 7,20,000)

Profit-sharing ratio (Ankur : Bhavna : Disha) = 2 : 7 : 3

(i) Bhavna’s share of profit = `7,20,000 xx 7/12`

= ₹ 4,20,000

∴ Bhavna’s share of profit is ₹4,20,000, which is more than the guaranteed amount. Hence, no guarantee adjustment for Bhavna.

(ii) Disha’s  Share of Profit = `7,20,000 xx 3/12`

= ₹ 1,80,000

(iii) Disha’s Total Amount Earned = Share of Profit + Interest on Capital

= 1,80,000 + 24,000

= ₹ 2,04,000

(iv) Guaranteed Amount to Disha = ₹ 1,50,000

(v) Since Disha’s actual amount earned (₹ 2,04,000) is more than the guaranteed amount (₹ 1,50,000).

Deficiency = Nil (₹ 0)

∴ No amount is to be borne by Ankur.