Question 48 of 50intermediate🔧 ApplyNumerical5 marks

Abhay, Siddharth and Kusum are partners in a firm, sharing profits in the ratio of 5:3:2. Kusum is guaranteed Rs. 10,000 as her share in the profits. Any deficiency arising on that account shall be met by Siddharth. Profits for the years ending March 31, 2016 and 2017 are Rs. 40,000 and 60,000 respectively. Prepare Profit and Loss Appropriation Account.

Correct Answer

Profit and Loss Appropriation Account For the year ending March 31, 2016

ParticularsAmount (Rs.)ParticularsAmount (Rs.)
To Profit transferred to:By Profit & Loss A/c40,000
Abhay's Capital A/c20,000
Siddharth's Capital A/c10,000
Kusum's Capital A/c10,000
Total40,000Total40,000

For the year ending March 31, 2017

ParticularsAmount (Rs.)ParticularsAmount (Rs.)
To Profit transferred to:By Profit & Loss A/c60,000
Abhay's Capital A/c30,000
Siddharth's Capital A/c18,000
Kusum's Capital A/c12,000
Total60,000Total60,000
Exercise: Numerical Questions | Q: 30 | (Page 44)
For More Understanding

Explanation

This question tests the concept of guarantee of minimum profit to a partner. When a partner is guaranteed a minimum amount, their share is first calculated as per the profit-sharing ratio. If the calculated share is less than the guaranteed amount, the deficiency is borne by the guarantor partner(s). In this case, Kusum is guaranteed Rs. 10,000, and any deficiency is to be met by Siddharth alone.

Solution Steps

  1. Year 2016 (Profit = Rs. 40,000):

  2. Step 1: Calculate share as per ratio 5:3:2. Abhay = 5/10×4010 \times 40,000 = Rs. 20,000; Siddharth = 3/10×4010 \times 40,000 = Rs. 12,000; Kusum = 2/10×4010 \times 40,000 = Rs. 8,000.

  3. Step 2: Check guarantee. Kusum's share (Rs. 8,000) is less than guaranteed amount (Rs. 10,000). Deficiency = Rs. 10,000 - Rs. 8,000 = Rs. 2,000.

  4. Step 3: Deficiency borne by Siddharth. Siddharth's adjusted share = 12,000 - 2,000 = Rs. 10,000. Kusum's adjusted share = Rs. 10,000. Abhay's share = Rs. 20,000.

  6. Year 2017 (Profit = Rs. 60,000):

  7. Step 1: Calculate share as per ratio 5:3:2. Abhay = 5/10×6010 \times 60,000 = Rs. 30,000; Siddharth = 3/10×6010 \times 60,000 = Rs. 18,000; Kusum = 2/10×6010 \times 60,000 = Rs. 12,000.

  8. Step 2: Check guarantee. Kusum's share (Rs. 12,000) exceeds guaranteed amount (Rs. 10,000). No deficiency arises.

  9. Step 3: Profit distributed as per ratio: Abhay = Rs. 30,000; Siddharth = Rs. 18,000; Kusum = Rs. 12,000.

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