Question

Deb, Riza and Ved entered into a partnership on 1st July, 2023, without any agreement as to profit sharing, except that Deb guaranteed that Ved’s share of profit, after considering interest into account, would not be less than ₹ 8,500 per annum.

The initial capital provided by the partners was as follows:

Deb	₹ 60,000
Riza	₹ 20,000
Ved	₹ 12,000 (increased on the following 1st January, 2024, to ₹ 16,000)

In addition to the above capital, Deb and Riza gave temporary loans to the partnership firm as follows:

• Deb advanced ₹ 18,000 on 1st October, 2023, and was repaid on 1st April following.
• Riza advanced ₹ 40,000 on 1st September, 2023, and it was repaid, along with interest, on 1st December, 2023.

The profit of the firm for the year ended 31st March, 2024, before providing for any interest, was ₹ 21,000.

You are required to prepare for the year 2023-24:

1. Profit and Loss Appropriation Account.
2. Riza’s Loan Account.
3. Ved’s Capital Account.

Answer 1

(i)

Dr.	Profit and Loss Appropriation Account for the year ending 31st March, 2024			Cr.
Particulars	(₹)	(₹)	Particulars	(₹)
Profit transferred to:		19,860	By Profit and Loss A/c (₹ 21,000 − 1,140 Interest on loan)	19,860
Deb’s Capital A/c	6,620
Riza’s Capital A/c	6,620
Ved’s Capital A/c	6,620
		19,860		19,860

Working Notes:

(1) Calculation of Interest on Loan:

Deb: From 1-10-23 to 31-3-24:

= `18,000 xx 6/100 xx 6/12`

= ₹ 540

Riza: From 1-9-23 to 1-12-23:

= `40,000 xx 6/100 xx 3/12`

= ₹ 600

Interest on loan = 540 + 600 = ₹ 1,140

(2) Annual Guaranteed amount = ₹ 8,500

∴ Guaranteed amount for 9 months, as partnership firm started from 1st July, 2023:

= `8,500 xx 9/12`

= ₹ 6,375

Ved’s share in tbe Firm’s profits is ₹ 6,620 which is more than the guaranteed profit of ₹ 6,375. Therefore, he will get ₹ 6,620.

(ii)

Dr.	Riza’s Loan Account				Cr.
Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2023			2023
Dec. 1	To Bank A/c	40,600	Sept. 1	By Bank A/c	40,000
			Dec. 1	By Interest on Loan A/c	600
		40,600			40,600

(iii)

Dr.	Ved’s Capital Account				Cr.
Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2024			2023
March 31	To Balance c/d	22,620	July 1	By Bank A/c	12,000
			2024
			Jan. 1	By Bank A/c	4,000
			March 31	By Profit and loss Appropriation A/c	6,620
		22,620			22,620