Question

Ram, Mohan and Sohan are partners with capitals of Rs 5,00,000, Rs 2,50,000 and 2,00,000 respectively. After providing interest on capital @ 10% pa the profits are divisible as follows Ram $\frac{1}{2}$, Mohan $\frac{1}{3}$ and Sohan $\frac{1}{6}$. But Ram and Mohan have guaranteed that Sohan's share in the profit shall not be less than Rs 25,000, in any year. The net profit for the year ended March 31, 2007 is Rs 2,00,000, before charging interest on capital.

You are required to show distribution of profit.

Answer 1

Profit and Loss Appropriation Account

$\begin{array}{ccccccccccccc}\text{Dr}& & & & & & \text{For the year ending 31 March, 2007}& & & & & & \text{Cr}\end{array}$

$\begin{array}{cccccc}\text{Particulars}& & \text{Amt. (Rs)}& \text{Particulars}& & \text{Amt. (Rs)}\\ \text{Interest on Capital}& & & \text{Profit and Loss}& & 2,00,000\\ \text{Ram's Capital A/c}& 50,000& & & & \\ \text{Mohan's Capital A/c}& 25,000& & & & \\ \text{Sohan's Capital A/c}& \underset{–}{20,000}& 95,000& & & \\ \text{Profits Transferred to}& & & & & \\ \text{Ram's Capital A/c}& 52,500& & & & \\ \text{(-) Deficiency}& & & & & \\ (7,500\times \frac{3}{5})& \underset{–}{(4,500)}& 48,000& & & \\ \text{Mohan's Capital A/c}& 35,000& & & & \\ \text{(-) Deficiency}& & & & & \\ (7,500\times \frac{2}{5})& \underset{–}{(3,000)}& 32,000& & & \\ \text{Sohan's Capital A/c}& 17,500& & & & \\ \text{(+) Deficiency Received}& & & & & \\ \text{from}& & & & & \\ \text{Ram}& 4,500& & & & \\ \text{Mohan}& \underset{–}{3,000}& 25,000& & & \\ & & \underset{–}{\underset{–}{\overline{2,00,000}}}& & & \underset{–}{\underset{–}{\overline{2,00,000}}}\end{array}$

Working Note Profit Sharing Ratio $=\frac{1}{2}:\frac{1}{3}:\frac{1}{6}$

$=\frac{3:2:1}{6}=3:2:1$