Question

Anil, Sunil and Ravinder entered into a partnership on 1st April 2015 to share profits in the ratio of 2:1:1. It was provided in the deed that Ravinder's share of profit will not be less than Rs 70,000 per annum. The losses for the year ended 31st March, 2016 were Rs 2,00,000 before allowing interest Rs 8,000 on Anil's Loan which is due for the current year.

You are required to show necessary account for division of loss and also pass the necessary journal entries.

Answer 1

PROFIT AND LOSS ACCOUNT

Dr. for the year ending on 31st March, 2016 Cr.

$\begin{array}{cccc}\text{Particulars}& \text{Rs}& \text{Particulars}& \text{Rs}\\ \text{Loss before Interest}& 2,00,000& \text{Net Loss transferred to:}& \\ \text{Interest on Anil's Loan}& 8,000& \text{Anil's Capital A/c}1,04,000& \\ & & \text{Sunil's Capital A/c}52,000& \\ & & \text{Ravinder's Capital A/c}\underset{–}{52,000}& 2,08,000\\ & \underset{–}{\overline{2,08,000}}& & \underset{–}{\overline{2,08,000}}\end{array}$

JOURNAL

$\begin{array}{ccccc}\text{Date}& \text{Particulars}& \text{L.F}& \text{DR. (Rs)}& \text{Cr.(Rs)}\\ 2016& & & & \\ \text{March 31}& \text{Interest on Anil's Loan A/c}Dr.& & 8,000& \\ & \text{To Anil's Loan A/c}& & & 8,000\\ & \text{(Interest provided on Anil's Loan to the firm)}& & & \\ & \underset{–}{}& & & \\ & \text{Profit \& Loss A/c}Dr.& & 8,000& \\ & \text{To Interest on Anil's Loan A/c}& & & 8,000\\ & \text{(Interest on loan charged to Profit \& Loss A/c)}& & & \\ & \underset{–}{}& & & \\ & \text{Anil's Capital A/c}Dr.& & 1,04,000& \\ & \text{Sunil's Capital A/c}Dr.& & 52,000& \\ & \text{Ravinder's Capital A/c}Dr.& & 52,000& \\ & \text{To Profit \& Loss A/c}& & & 2,08,000\\ & \text{(Loss of Rs 2,08,000 divided among the partners}& & & \\ & \text{in 2:1:1)}& & & \\ & \underset{–}{}& & & \\ & \text{Anil's Capital A/c}Dr.& & 81,333& \\ & \text{Sunil's Capital A/c}Dr.& & 40,667& \\ & \text{To Ravinder's Capital A/c}& & & 1,22,000\\ & \text{(Deficiency of Ravinder's share of profit met by}& & & \\ & \text{Anil and Sunil in their profit sharing ratio of 2:1)}& & & \end{array}$

Working Note: Ravinder is guaranteed a minimum profit of Rs 79,000 whereas share of loss debited to his Capital Account is Rs 52,000. Hence, he will be credited by Rs 1,22,000 (i.e., Rs 70,000+Rs 52,000) borne by Anil and Sunil in their profit sharing ratio of 2 :1)