Question 29 of 50intermediate🔧 ApplyNumerical5 marks

Amann, Babita and Suresh are partners in a firm. Their profit sharing ratio is 2:2:1. Suresh is guaranteed an amount of Rs. 10,000 as share of profit, every year. Any deficiency on that account shall be met by Babita. The profits for two years ending March 31, 2019 and March 31, 2020 were Rs. 40,000 and Rs. 60,000, respectively. Prepare the Profit and Loss Appropriation Account for the two years.

Correct Answer

Profit and Loss Appropriation Account for the year ending March 31, 2019 Dr. Cr.

ParticularsAmount (Rs.)ParticularsAmount (Rs.)
To Amann’s Capital A/c16,000By Profit and Loss A/c40,000
To Babita’s Capital A/c14,000
To Suresh’s Capital A/c10,000
Total40,000Total40,000

Profit and Loss Appropriation Account for the year ending March 31, 2020 Dr. Cr.

ParticularsAmount (Rs.)ParticularsAmount (Rs.)
To Amann’s Capital A/c24,000By Profit and Loss A/c60,000
To Babita’s Capital A/c24,000
To Suresh’s Capital A/c12,000
Total60,000Total60,000

Working Notes:

1. Calculation of Profit Share for Year 2019: Total Profit = Rs. 40,000. Profit sharing ratio is 2:2:1. Amann’s Share = 40,000×2000 \times 2/5 = Rs. 16,000. Babita’s Share = 40,000×2000 \times 2/5 = Rs. 16,000. Suresh’s Share = 40,000×1000 \times 1/5 = Rs. 8,000. Suresh is guaranteed a minimum profit of Rs. 10,000. Deficiency = 10,000 - 8,000 = Rs. 2,000. This deficiency is met by Babita. Babita’s Final Share = 16,000 - 2,000 = Rs. 14,000. Suresh’s Final Share = 8,000 + 2,000 = Rs. 10,000.

2. Calculation of Profit Share for Year 2020: Total Profit = Rs. 60,000. Amann’s Share = 60,000×2000 \times 2/5 = Rs. 24,000. Babita’s Share = 60,000×2000 \times 2/5 = Rs. 24,000. Suresh’s Share = 60,000×1000 \times 1/5 = Rs. 12,000. Suresh’s share (Rs. 12,000) is greater than the guaranteed amount (Rs. 10,000), so no deficiency arises. Profit is distributed as per the ratio.

Exercise: Numerical Questions | Q: 9 | (Page 39)
For More Understanding

Explanation

The question requires the preparation of Profit and Loss Appropriation Accounts for two years with a guarantee clause. For the year 2019, Suresh's calculated share (Rs. 8,000) was less than the guaranteed amount (Rs. 10,000). The deficiency of Rs. 2,000 was borne by Babita, reducing her share from Rs. 16,000 to Rs. 14,000. For the year 2020, Suresh's share (Rs. 12,000) exceeded the guaranteed amount, so profits were distributed normally in the 2:2:1 ratio. The solution follows the standard format for such adjustments as found in NCERT textbook examples.

Solution Steps

  1. Step 1: Calculate the proportionate share of profit for each partner based on the ratio 2:2:1 for both years.

  2. Step 2: For Year 2019, identify that Suresh's share (Rs. 8,000) is less than the guarantee (Rs. 10,000).

  3. Step 3: Calculate the deficiency (Rs. 2,000) and deduct it from Babita's share, adding it to Suresh's share.

  4. Step 4: For Year 2020, identify that Suresh's share (Rs. 12,000) exceeds the guarantee, requiring no adjustment.

  5. Step 5: Prepare the final Profit and Loss Appropriation Accounts showing the distributed amounts.

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