Question

Mukesh and Ramesh are partners sharing profits and losses in the ratio of 2 : 1 respectively. They admit Rupesh as partner with 1/4th share in profits with guarantee that his share of profit shall be at least Rs 55,000. The net profit of the firm for the year ending 31st March 2013 was Rs 1,60,000. Prepare Profit and Loss Appropriation Account.

Answer 1

PROFIT AND LOSS APPROPRIATION ACCOUNT
for the year ended on 31st March, 2013
$\begin{array}{cccc}\text{Particulars}& \text{Amount}& \text{Particulars}& \text{Amount}\\ & \text{(Rs)}& & \text{(Rs)}\\ \text{To Mukesh's Capital A/c}& & \text{By Profit}\&\text{Loss A/c}& \\ (Rs.1,60,000\times 2/4)80,000& & \text{(Net Profit)}& 1,60,000\\ {\text{Less : Deficiency Borne}}^{\ast }\underset{–}{(10,000)}& 70,000& & \\ \text{To Ramesh's Capital A/c}& & & \\ (\text{Rs}1,60,000\times 1/4)40,000& & & \\ {\text{Less : Deficiency Borne}}^{\ast }\underset{–}{(5,000)}& 35,000& & \\ \text{To Rupesh's Capital A/c}& & & \\ (\text{Rs}.1,60,000\times 1/4)40,000& & & \\ \text{Add: Deficiency Borne by:}& & & \\ \text{Mukesh}10,000& & & \\ \text{Ramesh}\underset{–}{5,000}& \underset{–}{35,000}& & \underset{–}{}\\ & 1,60,000& & 1,60,000\end{array}$

Working Notes :

*1. Calculation of the new profit sharing ratio.

Let the total share be 1

Rupesh's share = $\frac{1}{4}$

Remaining share = $1-\frac{1}{4}=\frac{3}{4}$

Mukesh's new share = $\frac{3}{4}\times \frac{2}{3}=\frac{2}{4}$

Ramesh's new share = $\frac{3}{4}\times \frac{1}{3}=\frac{1}{4}$

New sharing ratio = $\frac{2}{4}:\frac{1}{4}:\frac{1}{4}=2:1:1$

*2. Rupesh's actual share of profit = Rs 1,60,000 $\frac{1}{4}$= Rs 40,000

*3. Deficiency = Guaranteed amount - Share in profit

= Rs 55,000 - Rs 40,000 = Rs 15,000

*4. Deficiency is to be borne by Mukesh and Ramesh in the ratio of 2 :1 as follows :

Mukesh = Rs $15,000\times \frac{2}{3}=$ Rs 10,000

Ramesh = Rs $15,000\times \frac{1}{3}=$ Rs 5,000