Question

$A,B$ and $C$ are partners'in a firm sharing profits and losses in the ratio of $4:2:1$; It is provided that $C^{\prime }s$ share in profit would not be less than $Rs.37,500$. The profit for the year ended 31st March; 2018 amounted to $Rs.1,57,500$.
Pass Journal entries in the books of firm and prepare Profit and Loss Appropriation Account.

Answer 1

C's share of profit is (1,57,500*1/7) 22,500. So,the deficiency of (37,500-22,500) i.e 15,000 is to be borne by A and B in the ratio of 4:2.

Journal Entries are:-

Profit and Loss A/c Dr. 1,57,500

To Profit and Loss appropriation A/c 1,57,500

(Being profit transferred to P&L appropriation account)

Profit and Loss Appropriation A/c Dr. 1,57,500

To A's capital A/c 90,000

To B's capital A/c 45,000

To C's capital A/c 22,500

(Being actual distribution of profit)

A's capital A/c Dr. 10,000

B's capital A/c Dr. 5000

To C's capital A/c 15,000

(Being deficiency of C,contributed by A and B)

PROFIT AND LOSS APPROPRIATION ACCOUNT

Particulars	Amount	Particulars	Amount
To A's capital A/c 90,000 Less:C's deficiency (10,000) To B's capital A/c 45,000 Less: C's deficiency (5000) To C's capital A/c 22,500 Add: share from A&B 15,000	1,57,500	By Net profit	1,57,500
Total	1,57,500	Total	1,57,500