Question

Asgar, Chaman and Dholu are partners in a firm. Their Capital Accounts stood at ₹ 6,00,000; ₹ 5,00,000 and ₹ 4,00,000 respectively on 1st April, 2017. They shared Profits and Losses in the proportion of 4 : 2 : 3. Partners are entitled to interest on capital @ 8% per annum and salary to Chaman and Dholu @ ₹ 7,000 per month and ₹ 10,000 per quarter respectively as per the provision of the Partnership Deed. Sholu's share of profit ( excluding interest on capital but including salary) is guaranteed at a minimum of ₹ 1,10,000 p.a. Any deficiency arising on that account shall be met by Asgar. The profit for the year ended 31st March, 2018 amounted to ₹ 4,24,000.
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)	4,24,000
Asgar	48,000
Chaman	40,000
Dholu	32,000	1,20,000
Salary to Chaman (Rs 7,000 × 12)		84,000
Salary to Dholu (Rs 10,000 × 4)		40,000
Profit transferred to:
Asgar	70,000
Chaman	40,000
Dholu	70,000	1,80,000
		4,24,000		4,24,000

Working Notes:

Profit available for distribution = 4,24,000 – (1,20,000 + 84,000+ 40,000) = Rs 1,80,000
Profit sharing ratio = 4 : 2 : 3

Dholu’s Minimum Guaranteed Profit = Rs 1,10,000 (excluding interest on capital, but including salary)
Dholu’s Minimum Guaranteed Profit (excluding salary) = 1,10,000 – 40,000 = Rs 70,000
But, Dholu’s Actual Profit Share = Rs 60,000
Deficiency in Dholu’s Profit Share = 70,000 – 60,000 = 10,000
This deficiency is to be borne by Asgar alone.
Therefore,
Asgar’s New Profit Share = 80,000 – 10,000 = Rs 70,000