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P and Q Were Partners in a Firm Sharing Profits in the Ratio of 5:3. on 1-4-2014 They Admitted R as a New Partner for 1/8th Share in the Profits with a Guaranteed Profit of Rs. 75,000. - Accountancy

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P and Q were partners in a firm sharing profits in the ratio of 5:3. On 1-4-2014 they admitted R as a new partner for 1/8th share in the profits with a guaranteed profit of Rs. 75,000. The new profit sharing ratio between P and Q will remain the same but they agreed to bear any deficiency on account of guarantee to R in the ratio 3:2. The profit of the firm for the year ended 31-3-2015 was Rs. 4,00,000.

Prepare Profit and Loss Appropriation Account of P, Q and R for the year ended 31-3-2015.

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Solution

                                          Profit and Loss Appropriation Account
                                               for the year ended March 31,2015

Dr.                                                                                                                            Cr.

Particular Amount (Rs.) Particular Amount (Rs.)

To Profit transferred to :

           P’s Capital A/c        2,03,125

           Q’s Capital A/c        1,21,875

           R’s Capital A/c           75,000

 

 

 

 

4,00,000

 

By Profit and Loss A/c

 

 

 

 

4,00,000

 

 

 

 

  4,00,000   4,00,000

Working Notes :

R's Share in Profit = `4,00,000 xx 1/8` = 50,000

Minimum Guaranteed Profitr to R = 75,000

Deficiency = 25,000 (75,000 - 50,000)

Deficiency to be borne by P and Q in the ratio of 3:2

Amount to be borne by P = `25,000 xx 3/5` = 15,000

Amount to be borne by Q = `25,000 xx 2/5` = 10,000

Remaining Profit = 3,50,000 (4,00,000 - 50,000)

Remaining Profit will be shared by P and Q in 5 : 3

P's share = `3,50,000 xx 5/8` = 2,18,750

Q's share = `3,50,000 xx 3/8` = 1,31,250

∴ P's actual  Share = 2,18,750 - 15,000 = 2,03,750

& Q's Profit Share = 1,31,250 - 10,000 = 1,21,250

Concept: Preparation of Profit and Loss Appropriation Account
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