Question

Arun, Boby and Chintu are partners in firm sharing profit in the ratio of 2:2:1. According to the terms of the partnership agreement. Chintu has to get a minimum of Rs 60,000, irrespective of the profits of the firm. Any Deficiency to Chintu on Account of such guarantee shall be borne by Arun. Prepare the profit and loss appropriation account showing distribution of profits among partners in case the profits for year 2006 are (i) Rs 2,50,000; (ii) Rs 3,60,000.

Answer 1

(i)

$\begin{array}{ccccccccccc}\text{Dr}& & & & & & \text{Profit and Loss Appropriation Account}& & & & \text{Cr}\end{array}$

$\begin{array}{cccccc}\text{Particulars}& & \text{Amt. (Rs)}& \text{Particulars}& & \text{Amt. (Rs)}\\ \text{Profit Transffered to}& & & \text{Profit and Loss}& & 2,50,000\\ \text{Arun's Capital A/c}& 1,00,000& & & & \\ \text{(-) Chintu's Deficiency}& \underset{–}{(10,000)}& 90,000& & & \\ \text{Boby's Capital A/c}& & 1,00,000& & & \\ \text{Chintu's Capital A/c}& 50,000& & & & \\ \text{(+) Deficiency Borne by}& & & & & \\ \text{Arun}& \underset{–}{10,000}& 60,000& & & \\ & & \overline{\underset{–}{\underset{–}{2,50,000}}}& & & \overline{\underset{–}{\underset{–}{2,50,000}}}\end{array}$

(ii)

$\begin{array}{ccccccc}\text{Dr}& & & & \text{Profit and Loss Appropriation Account}& & \text{Cr}\end{array}$

$\begin{array}{cccc}\text{Particulars}& \text{Amt. (Rs)}& \text{Particulars}& \text{Amt. (Rs)}\\ \text{Profit transferred to}& & \text{Profit and Loss}& 3,60,000\\ \text{Arun's Capital A/c}& 1,44,000& & \\ \text{Boby's Capital A/c}& 1,44,000& & \\ \text{Chintu's Capital A/c}& 72,000& & \\ & \underset{–}{\underset{–}{\overline{3,60,000}}}& & \underset{–}{\underset{–}{\overline{3,60,000}}}\end{array}$

Working Note

(i) Arun $2,50,000\times \frac{2}{5}=Rs1,00,000$

Boby $2,50,000\times \frac{2}{5}=Rs1,00,000$

Chintu $2,50,000\times \frac{2}{5}=Rs1,00,000$

(ii) $3,60,000\times \frac{2}{5}=Rs1,44,000$

$3,60,000\times \frac{2}{5}=Rs1,44,000$

$3,60,000\times \frac{1}{5}=Rs72,000$