Question

A, B and C are partners sharing profits in the ratio of 5 : 4 : 1. C is given a guarantee that his minimum share of profit in any given year would be at least ₹ 5,000. Deficiency, if any, would be borne by A and B equally. The profit for the year 2017-18 amounted to ₹ 40,000.
Pass necessary Journal entries in the books of the firm.

Answer 1

Profit and Loss Appropriation Account for the year ended 2015–16
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Profit transferred to:			Profit and Loss A/c (Net Profit)	40,000
A’s Capital A/c	19,500
B’s Capital A/c	15,500
C’s Capital A/c	5,000	40,000
		40,000		40,000

Working Notes:

Profit for the year = Rs 40,000

Profit sharing ratio = 5 : 4 : 1

C is given a guarantee of minimum profit of Rs 5,000

Deficiency in C’s share = 5,000 − 4,000 = Rs 1,000

This deficiency is to be borne by A and B equally.

Therefore,

Final Profit Share of A = 20,000 − 500 = Rs 19,500

Final Profit Share of B = 16,000 − 500 = Rs 15,500

Final Profit Share of C = 4,000 + 1,000 = Rs 5,000