Question

A and B are in partnership sharing profits and losses in the ratio of 3 : 2. They decided to admit C, their Manager, as a partner with effect from 1st April, 2017, giving him 1/4th share of profits.
C, while a Manager, was in receipt of a salary of ₹ 27,000 p.a. and a commission of 10% of the net profits after charging such salary and commission.
In terms of the Partnership Deed, and excess amount, which C will be entitled to receive as a partner over the amount which would have been due to him if he continued to be the manager, would have to be personally borne by A out of his share of profit. Profit for the year ended 31st March, 2018 amounted to ₹ 2,25,000. You are required to show Profit and Loss Appropriation Account for the year ended 31at March, 2018.

Answer 1

Profit and Loss Appropriation Account for the year and March 31, 2018
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Profit transferred to:			Profit and Loss A/c	2,25,000
A’s Capital A/c	96,750
B’s Capital A/c	72,000
C’s Capital A/c	56,250	2,25000
		2,25000		2,25000

Working Notes:

WN 1 Calculation of Remuneration to C as a Manager

Salary to C = Rs 27,000

Commission to C = 10% of Net Profit after Salary and Commission

Net Profit after Salary and Commission = 2,25,000 − 27,000 = Rs 1,98,000

C’s remuneration as Manager = Salary + Commission = 27,000 + 18,000 = Rs 45,000

WN 2 Calculation of Profit Share of C as a Partner

Profit = Rs 2,25,000

Part of C’s Profit Share to be borne by A = 56,250 − 45,000 = Rs 11,250

Profit available for distribution between A and B = 2,25,000 − 45,000 = Rs 1,80,000

A’s Profit share after adjusting C’s deficiency = 1,08,000 − 11,250 = Rs 96,750