Question

Aman, Babita and Suresh are partners in a firm. Their profit sharing ratio is 2 : 2 : 1. Suresh is guaranteed a minimum amount of Rs 10,000 as share of profit, every year. Any deficiency on that account shall be met by Babita. The profits for two years ending December 31, 2005 and December 31, 2006 were Rs 40,000 and Rs 60,000 respectively. Prepare the profit and loss appropriation account for the two years.

Answer 1

Profit and Loss Appropriation Account

$\begin{array}{cccccccccccc}\text{Dr}& & & & & & \text{For the year 2005}& & & & & \text{Cr}\end{array}$

$\begin{array}{cccccc}\text{Particulars}& & \text{Amt. (Rs)}& \text{Particulars}& & \text{Amt. (Rs)}\\ \text{Profit Transferred to}& & & \text{Profit and Loss}& & 40,000\\ \text{Aman's Capital A/c}& (16,000)& 16,000& & & \\ \text{Babita's Capital A/c}& (16,000-2,000)& 14,000& & & \\ \text{Suresh's Capital A/c}& (8,000+2,000)& 10,000& & & \\ & & \underset{–}{\overline{40,000}}& & & \underset{–}{\overline{40,000}}\end{array}$

Profit and Loss Appropriation Account

$\begin{array}{cccccccc}\text{Dr}& & & & & \text{For the year 2006}& & \text{Cr}\end{array}$

$\begin{array}{cccccc}\text{Particulars}& & \text{Amt. (Rs)}& \text{Particulars}& & \text{Amt. (Rs)}\\ \text{Profit Transferred to}& & & \text{Profit and Loss}& & 60,000\\ \text{Aman's Capital A/c}& & 24,000& & & \\ \text{Babita's Capital A/c}& & 24,000& & & \\ \text{Suresh's Capital A/c}& & 12,000& & & \\ & & \underset{–}{\overline{60,000}}& & & \underset{–}{\overline{60,000}}\end{array}$

Note In the year of 2005, Suresh's deficit Rs 2,000 was contributed by Babita. In the year of 2006. Suresh's profit was already above guarantee so no adjustment was required.