Question

Ashok, Brijesh and Cheena are partners sharing profits and losses in the ratio of 2:2:1. Ashok and Brijesh have gurarateed that Cheena share in any year shall not be less than Rs 20,000. The net profit for the year ended March 31, 2006 amounted to Rs 70,000. Prepare profit and loss appropriation account.

Answer 1

Profit and Loss Appropriation Account

$\begin{array}{ccccccccccccccc}\text{Dr}& & & & & & \text{For the year ending March 31, 2006}& & & & & & & & \text{Cr}\end{array}$
$\begin{array}{cccccc}\text{Particulars}& & \text{Amt. (Rs)}& \text{Particulars}& & \text{Amt. (Rs)}\\ \text{Profit Transffered to}& & & \text{Profit and Loss}& & 70,000\\ \text{Ashok's Capital A/c}& 28,000& & & & \\ \text{(-) Cheena's Deficiency}& \underset{–}{(3,000)}& 25,000& & & \\ \text{Brijesh's Capital A/c}& 28,000& & & & \\ \text{(-) Cheena's Deficiency}& \underset{–}{(3,000)}& 25,000& & & \\ \text{Cheena's Capital A/c}& 14,000& & & & \\ \text{(+) Deficiency Received from}& & & & & \\ \text{Ashok}& 3,000& & & & \\ \text{Brijesh}& \underset{–}{3,000}& 20,0000& & & \\ & & \underset{–}{\underset{–}{70,000}}& & & \underset{–}{\underset{–}{70,000}}\end{array}$

Working Note

Profit of Ashok $70,000\times \frac{2}{5}=Rs28,000$

Brijesh $70,000\times \frac{2}{5}=Rs28,000$

Cheena $70,000\times \frac{1}{5}=Rs14,000$

Cheena's Deficiency = Guarantee - Actual Profit

(To be borne by Ashok and Brijesh equally) 20,000 - 14,000 = Rs 6,000