Question

Ram, Raj, and George are partners sharing profits in the ratio 5:3:2. According to the partnership agreement George is to get a minimum amount of Rs 10,000 as his share of profits every year. The net profit for the year 2006 amounted to Rs 40,000. Prepare the profit and loss appropriation account.

Answer 1

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

$\begin{array}{cccccc}\text{Particulars}& & \text{Amt. (Rs)}& \text{Particulars}& & \text{Amt. (Rs)}\\ \text{Profit Transferred to}& & & \text{Profit and Loss}& & 40,000\\ \text{Ram's Captial's A/c}& (20,000-1,250)& 18,750& & & \\ \text{Raj's Capital A/c}& (12,000-750)& 11,250& & & \\ \text{George's Capital A/c}& (8,000+1,250+750)& 10,000& & & \\ & & \underset{–}{\overline{40,000}}& & & \underset{–}{\overline{40,000}}\end{array}$

Note If the partner guaranteed, does not get assured amount as profit, then the deficit is to be given by the remaining partners as question says, If no information is given, the contribution will be in Profit sharing ratio.

Working Note

George's share = $40,000\times \frac{2}{10}=8,000$

Guaranteed profit $=\underset{–}{10,000}$

Deficiency = 2,000

Ram's Contribution $\frac{5}{8}\times 2,000=1,250$

Raj's Contribution $\frac{3}{8}\times 2,000=750$