Question

Amit, Babita and Sona form a partnership firm, sharing profits in the ratio of 3:2:1, subject to the following

(i) Sona's share in the profits, guaranteed to be not less than Rs 15,000 in any year.

(ii) Babita gives guarantee to the effect that gross fee earned by her for the firm shall be equal to her average gross fee of the proceeding five years, when she was carrying on profession alone (which is Rs 25,000). The net profit for the year ended March 31, 2007 is Rs 75,000. The gross fee earned by Babita for the firm was Rs 16,000.

You are required to show profit and loss appropriation account (after giving effect to the alone).

Answer 1

Profit and Loss Appropriation Account

$\begin{array}{cccccccccccccc}\text{Dr}& & & & & & \text{For the year ending March 31, 2007}& & & & & & & \text{Cr}\end{array}$
$\begin{array}{cccccc}\text{Particulars}& & \text{Amt. (Rs)}& \text{Particulars}& & \text{Amt. (Rs)}\\ \text{Profit Transffered to}& & & \text{Profit and Loss}& & 75,000\\ \text{Amit's Capital A/c}& 42,000& & & & \\ \text{(-) Sona's Deficiency}& \left(600\right)& 41,400& \text{Babita's Capital}& & \\ \text{Babita's Capital A/c}& \overline{28,000}& & \text{(Less Earned i.e.,}& & 9,000\\ \text{(-) Sona's Deficiency}& \left(400\right)& 27,600& 25,000-16,000)& & \\ \text{Sona's Capital A/c}& \overline{14,000}& & & & \\ \text{(+) Deficiency Received}& & & & & \\ \text{from}& & & & & \\ \text{Amit}& 600& & & & \\ \text{Babita}& \underset{–}{400}& 15,000& & & \\ & & & & & \\ & & & \underset{–}{\underset{–}{\overline{84,000}}}& & \underset{–}{\underset{–}{\overline{84,000}}}\end{array}$

Working Note

Distribution of Profit

Amit's $84,000\times \frac{3}{6}=Rs42,000$

Babita's $84,000\times \frac{2}{6}=Rs28,000$

Sona's $84,000\times \frac{1}{6}=Rs14,000$

Sona's Deficiency = 15,000 - 14,000

= Rs 1,000 (borne by Amit and Babita in 3:2 ratio)