Question

Abhay, Siddharth and Kusum are partners in a firm, sharing profits in the ratio of 5:3:2. Kusum is guaranteed a minimum amount of Rs 10,000 as per share in the profits. Any deficiency arising on that account shall be met by Siddharth. Profits for the years ending March 31, 2006 and 2007 are Rs 40,000 and 60,000 respectively. Prepare profit and loss appropriation account.

Answer 1

Profit and Loss Appropriation Account

$\begin{array}{cccccccccccccc}\text{Dr}& & & & & & \text{for the year ending 31 March, 2006}& & & & & & & \text{Cr}\end{array}$

$\begin{array}{cccccc}\text{Particulars}& & \text{Amt. (Rs)}& \text{Particulars}& & \text{Amt. (Rs)}\\ \text{Profit Transferred to}& & & \text{Profit and Loss}& & 40,000\\ \text{Abhay's Capital A/c}& & 20,000& & & \\ \text{Siddharth's Capital A/c}& 12,000& & & & \\ \text{(-) Deficiency of Kusuma}& \underset{–}{(2,000)}& 10,000& & & \\ \text{Kusum's Capital A/c}& 8,000& & & & \\ \text{(+) Siddharth's}& & & & & \\ \text{Guarantee}& \underset{–}{2,000}& 10,000& & & \\ & & \underset{–}{\underset{–}{\overline{40,000}}}& & & \underset{–}{\underset{–}{\overline{40,000}}}\end{array}$

Profit and Loss Appropriation Account

$\begin{array}{cccccccccc}\text{Dr}& & & & \text{for the year ending 31 March, 2007}& & & & & \text{Cr}\end{array}$

$\begin{array}{cccc}\text{Particulars}& \text{Amt. (Rs)}& \text{Particulars}& \text{Amt. (Rs)}\\ \text{Profit transferred to}& & \text{Profit and Loss}& 60,000\\ \text{Abhay's Capital A/c}& 30,000& & \\ \text{Siddharth's Capital A/c}& 18,000& & \\ \text{Kusum's Capital A/c}& \underset{–}{12,000}& & \\ & \underset{–}{\underset{–}{60,000}}& & \overline{\underset{–}{\underset{–}{60,000}}}\end{array}$

Note In Year 2007, the profit share of partner Kusum is already above guaranteed amount, thus there is no need of adjustment.