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.
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
