Question

Ankur, Bhavns and Disha are partners in a firm. On 1st April, 2017, the balance in their Capital Accounts stood at ₹ 14,00,000, ₹ 6,00,000 and ₹ 4,00,000 respectively. They shared profits in the proportion of 7 : 3 : 2 respectively. Partners are entitled to interest on capital @ 6% per annum and salary to Bhavna @ ₹ 50,000 p.a. and a commission of ₹ 3,000 per month to Disha as per the provisions of the partnership Deed. Bhavna's share of profit (excluding interest on capital) is guaranteed at not less than ₹ 1,70,000 p.a. Disha's share of profit (including interest on capital but excluding commission) is guaranteed at not less than ₹ 1,50,000 p.a. Any deficiency arising on that account shall be met by Ankur. The profit of the firm for the year ended 31st March, 2018 amounted to ₹ 9,50,000.
Prepare Profit and Loss Appropriation Account for the year ended 31st March, 2018.

Answer 1

Profit and Loss Appropriation Account for the year ended March 31, 2018
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Interest on Capital to:			Profit and Loss A/c (Net Profit)	9,50,000
Ankur	84,000
Bhavna	36,000
Disha	24,000	1,44,000
Salary to Bhavna		50,000
Commission to Disha (Rs 3,000 × 12)		36,000
Profit transferred to:
Ankur	4,14,000
Bhavna	1,80,000
Disha	1,26,000	7,20,000
		9,50,000		9,50,000

Working Notes:

Profit available for distribution = 9,50,000 – (1,44,000 + 50,000 + 36,000) = Rs 7,20,000
Profit sharing ratio = 7 : 3 : 2

Bhavna’s Minimum Guaranteed Profit = Rs 1,70,000 (excluding interest on capital)
But, Bhavna’s Actual Profit Share = Rs 1,80,000
This implies that there is no deficiency in Bhavna’s profit share as her actual profit share (i.e. Rs 1,80,000) exceeds his minimum guaranteed profit share (i.e. Rs 1,70,000).

Disha’s Minimum Guaranteed Profit = Rs 1,50,000 (including interest on capital but excluding salary)
Disha’s Minimum Guaranteed Profit (excluding interest) = 1,50,000 – 24,000 = Rs 1,26,000
But, Disha’s Actual Profit Share = 1,20,000
Deficiency in Disha’s Profit Share = 1,26,000 – 1,20,000 = 6,000
This deficiency is to be borne by Ankur alone.
Therefore,
Ankur’s New Profit Share = 4,20,000 – 6,000 = Rs 4,14,000