Question

Karim, Micky, and Jai are partners sharing profits and losses in the ratio of 3 : 2 : 1.

On 1^st April, 2024, their capital balances were ₹ 2,10,000,  ₹ 1,20,000, and ₹ 1,00,000 respectively.

As per the Partnership Deed,

• Interest on Capital to be allowed @ 10% per annum.
• Salary to be allowed to Karim @ ₹ 2,000 per month.
• Jai to compensate for the deficit in the net profit, if the net profit is less than ₹ 2,50,000 per annum.

The net profit for the year ended 31^st March, 2025, was ₹ 2,00,000 before allowing Interest on Capital, but after allowing Karim’s salary.

You are required to:

1. Prepare Profit and Loss Appropriation Account for the year ended 31^st March, 2025.
2. Find the balance of Jai’s Capital after the distribution of profits.

Answer 1

(i)

Dr.	Profit and Loss Appropriation Account For the year ended 31st March, 2025			Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)
To Karim’s Salary		24,000	By Profit & Loss A/c	2,24,000
To Interest on Capital:		43,000	By Jai’s Capital A/c	26,000
Karim	21,000
Micky	12,000
Jai	10,000
To Profit transferred to:		1,83,000
Karim’s Capital	91,500
Micky’s Capital	61,000
Jai’s Capital	30,500
		2,50,000		2,50,000

(ii) The balance of Jai’s Capital Account

Particulars	Amount (₹)
Opening Capital	1,00,000
Add: Interest on Capital (10%)	10,000
Add: Share of Divisible Profit	30,500
	1,40,500
Less: Deficit compensation paid to the firm	26,000
Balance of Jai’s Capital (March 31, 2025)	1,14,500

Working Note:

1. Calculation for Net Profit

Karim’s Salary = 2,000 xx 12

= 24,000

Actual Net Profit = 2,00,000 + 24,000

= 2,24,000

2. Jai’s Guarantee (Deficit Compensation) = 2,50,000 − 2,24,000

= 26,000

3. Interest on Capital:

Karim = `2,10,000 xx 10/100`

= 21,000

Micky = `1,20,000 xx 10/100`

= 12,000

Jai = `1,00,000 xx 10/100`

= 10,000

Total Interest on Capital = 21,000 + 12,000 + 10,000

= ₹ 43,000

4. Divisible Profit = 2,50,000 − 24,000 − 43,000

= 1,83,000

Distribution 3 : 2 : 1

Karim = `1,83,000 xx 3/6`

= 91,500

Micky = `1,83,000 xx 2/6`

= 61,000

Jai = `1,83,000 xx 1/6`

= 30,500