Question

X, Y and Z are partners with capitals of ₹ 4,00,000, ₹ 3,00,000 and ₹ 2,00,000, respectively. They charge 8% p.a. interest on their capitals and divide the profits in the ratio of 3 : 2 : 1. X has guaranteed that Z’s share shall not amount to less than ₹ 50,000 in any one year.

Their drawings during the year were ₹ 50,000, ₹ 40,000, and ₹ 35,000, respectively. Net profits for the year before providing interest on capitals was ₹ 2,52,000. Prepare Profit and Loss Appropriation A/c and capital accounts.

Answer 1

Dr.	Profit and Loss Appropriation Account For the year ending 31st March 2021				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Interest on Capital:		72,000	By Profit and Loss A/c		2,52,000
X’s Capital	32,000
Y’s Capital	24,000
Z’s Capital	16,000
To Profit transferred to:		70,000
X’s Capital A/c	90,000
Less: Deficiency in Z’s Share	20,000
Y’s Capital A/c	60,000	60,000
Z’s Capital A/c	30,000	50,000
Add: Deficiency met by X’s Share	20,000
		2,52,000			2,52,000

 

Dr.	Partner’s Capital Accounts						Cr.
Particulars	X	Y	Z	Particulars	X	Y	Z
To Drawings	50,000	40,000	35,000	By balance b/d	4,00,000	3,00,000	2,00,000
To balance c/d	3,82,000	2,84,000	1,81,000	By Interest on Capital	32,000	24,000	16,000
	4,32,000	3,24,000	2,16,000		4,32,000	3,24,000	2,16,000

Working Note:

Share of Profit:

X = `1,80,000 xx 3/6`

= ₹ 90,000

Y = `1,80,000 xx 2/6`

= ₹ 60,000

Z = `1,80,000 xx 1/6`

= ₹ 30,000

The minimum guaranteed amount to Z is ₹ 50,000, whereas the share of profit as per the profit-sharing ratio works out to be ₹ 30,000 only. Hence, there is a shortfall of ₹ 20,000 which will be borne by X.