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Question
Anshul, Navdeep and Rajni were partners of a Chartered Accountants firm with profit sharing ratio of 2 : 1 : 2. The provisions of the partnership deed were as follows:
- Rent of ₹ 25,000 p.m. was to be given to Rajni.
- A monthly salary of ₹ 30,000 p.m. to Anshul.
- Navdeep was guaranteed a minimum profit of ₹ 4,00,000, and the deficiency arising because of the guarantee to Navdeep will be borne by Anshul and Rajni in the ratio of 12 : 7.
- Anshul guaranteed that he will earn an annual fee of ₹ 3,00,000.
The net profit earned by the firm amounted to ₹ 20,00,000, and the fee earned by Anshul during the year ended 31st March, 2024, was ₹ 2,25,000.
Prepare the Profit and Loss Appropriation Account and the Capital Accounts of partners for the year ended 31st March, 2024.
Hint: Rent will be ignored since it must have been debited to Profit and Loss A/c.
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Solution
| Dr. | Profit and Loss Appropriation Account for the year ended 31st March, 2024 |
Cr. | |||
| Particulars | Amount (₹) | Amount (₹) | Particulars | Amount (₹) | Amount (₹) |
| To Anshul’s salary A/c | 3,60,000 | By Profit and Loss A/c (Net Profit) | 20,00,000 | ||
| To Profit transferred to: | By Anshul’s Capital A/c (Deficiency in guaranteed fees: ₹ 3,00,000 − 2,25,000) |
75,000 | |||
| Anshul’s Capital A/c | 6,86,000 | 6,50,000 | |||
| Less: Guarantee to Navdeep | 36,000 | ||||
| Navdeep’s Capital A/c | 3,43,000 | 4,00,000 | |||
| Add: From Anshul | 36,000 | ||||
| Add: From Rajni | 21,000 | ||||
| Rajni’s Capital A/c | 6,86,000 | 6,65,000 | |||
| Less: Guarantee to Navdeep | 21,000 | ||||
| 20,75,000 | 20,75,000 | ||||
| Dr. | Partner’s Capital Account | Cr. | |||||
| Particulars | Anshul (₹) | Navdeep (₹) | Rajni (₹) | Particulars | Anshul (₹) | Navdeep (₹) | Rajni (₹) |
| To Profit and Loss Appropriation A/c | 75,000 | - | - | By Salary A/c | 3,60,000 | - | - |
| To Balance c/d | 9,35,000 | 4,00,000 | 9,65,000 | By Profit and Loss Appropriation A/c | 6,50,000 | 4,00,000 | 6,65,000 |
| By Rent | - | - | 3,00,000 | ||||
| 10,10,000 | 4,00,000 | 9,65,000 | 10,10,000 | 4,00,000 | 9,65,000 | ||
Working Note:
1. Profit to be Distributed = 20,00,000 + 75,000 − 3,60,000
= ₹ 17,15,000
2. Division of Profit (Ratio 2 : 1 : 2):
Anshul = `17,15,000 xx 2/5`
= ₹ 6,86,000
Navdeep = `17,15,000 xx 1/5`
= ₹ 3,43,000
Rajni = `17,15,000 xx 2/5`
= ₹ 6,86,000
3. Navdeep’s Deficiency:
Guaranteed = ₹ 4,00,000
Actual Share = ₹ 3,43,000
Deficiency = 4,00,000 − 3,43,000
= ₹ 57,000
4. Deficiency Sharing:
Ratio = 12 : 7
Anshul’s Share = `57,000 xx 12/19`
= ₹ 36,000
Rajni’s Share = `57,000 xx 7/19`
= ₹ 21,000
