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Question
Jay, Vijay, and Karan were partners of an architect firm sharing profits in the ratio of 2: 2: 1. Their partnership deed provided the following:
(i) A monthly salary of ₹ 15,000 each to Jay and Vijay.
(ii) Karan was guaranteed a profit of ₹ 5,00,000 and Jay guaranteed that he will earn an annual fee of ₹ 2,00,000. Any deficiency arising because of guarantee to Karan will be borne by Jay and Vijay in the ratio of 3: 2.
During the year ended 31st March 2018 Jay earned a fee of ₹ 1,75,000 and the profits of the firm amounted to ₹ 15,00,000. Showing your workings clearly prepare Profit and Loss Appropriation Account and the Capital Account of Jay, Vijay, and Karan for the year ended 31st March 2018.
Solution
Profit and Loss Appropriation Account
| Dr. | For the year ended 31st March 2018 | Cr. | |
| Particulars |
Amount(₹)
|
Particulars | Amount(₹) |
| To Salary to be credited to Capital Accounts of : |
|
By Profit for the year | 15,00,000 |
|
Jay - 1,80,000 |
|
By Jay's Capital A/c | 25,000 |
| Vijay - 1,80,000 |
3,60,000 |
(2,00,000 – 1,75,000) | |
|
|
|||
| To divisible profit to be credited to Capital Accounts of : (WN 1) |
|
||
| Jay - 3,05,800 |
|
||
| Vijay - 3,59,200 |
|
||
| Karan - 5,00,000 |
11,65,000 |
||
|
15,25,000 |
15,25,000 |
||
Working Note 1:
Computation of divisible profit and its distribution between partners
Divisible Profit = 11,65,000
Jay’s share in divisible profit = `11,65,000 xx (2)/(5) = 4,66,000`
Vijay’s share in divisible profit = `11,65,000 xx (2)/(5) = 4,66,000`
Karan’s share in divisible profit = `11,65,000 xx (1)/(5) = 2,33,000`
Profit share guaranteed to Karan = 5,00,000
Deficiency to Karan’s share in profit = 5,00,000 – 2,33,000 = 2,67,000
Deficiency to be borne by Jay = `2,67,000 xx (3)/(5) = 1,60,200`
Deficiency to be borne by Vijay = `2,67,000 xx (2)/(5) = 1,06,800`
Final Share in Divisible Profit for:
Jay = 4,66,000 – 1,60,200 = 3,05,800
Vijay = 4,66,000 – 1,06,800 = 3,59,200
Karan = 2,33,000 + 1,60,200 + 1,06,800 = 5,00,000
| Dr. | Partner’s Capital A/c | Cr. | |||||||
| Date | Particulars |
Jay(₹) |
Vijay(₹) |
Karan(₹) | Date | Particulars | Jay(₹) | Vijay(₹) | Karan(₹) |
| 2018 Mar. 31 |
To Profit & Loss Appropriation A/c |
25,000 |
|
2018 Mar.31 |
By Profit & Loss Appropriation A/c (Salary) | 1,80,000 | 1,80,000 | ||
|
|
|
||||||||
| 2018 Mar.31 |
To balance c/d | 4,60,800 |
5,39,200 |
5,00,000 | 2018 Mar.31 |
By Profit & Loss Appropriation A/c (Divisible profits) | 3,05,800 | 3,59,200 | 5,00,000 |
| 4,85,800 |
5,39,200 |
5,00,000 |
4,85,800 |
5,39,200 | 5,00,000 | ||||
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