Question 7 of 50intermediate🔧 ApplyNumerical4 marks

Kavita and Lalit are partners sharing profits in the ratio of 2:1. They decide to admit Mohan with share in profits with a guaranteed amount of Rs. 25,000. Both Kavita and Lalita undertake to meet the liability arising out of Guaranteed amount to Mohan in their respective profit sharing ratio. The profit sharing ratio between Kavita and Lalit does not change. The firm earned profits of Rs. 76,000 for the year 2006–07. Show the distribution of profit amongst the partners.

Correct Answer

Profit and Loss Appropriation Account

ParticularsAmount (Rs.)ParticularsAmount (Rs.)
To Profit transferred to:By Net Profit76,000
Kavita's Capital A/c34,000
Lalit's Capital A/c17,000
Mohan's Capital A/c25,000
Total76,000Total76,000

Working Notes:

1. Calculation of New Profit Sharing Ratio: Assuming Mohan is admitted with 1/4 share (as per similar pattern in context examples):

  • Remaining share = 1 - 1/4 = 3/4
  • Kavita's new share = 3/4×24 \times 2/3 = 2/4 = 1/2
  • Lalit's new share = 3/4×14 \times 1/3 = 1/4
  • New Profit Sharing Ratio = 2:1:1

2. Distribution of Profit as per Ratio:

  • Kavita's share = 2/4×764 \times 76,000 = Rs. 38,000
  • Lalit's share = 1/4×764 \times 76,000 = Rs. 19,000
  • Mohan's share = 1/4×764 \times 76,000 = Rs. 19,000

3. Calculation of Deficiency:

  • Mohan's guaranteed amount = Rs. 25,000
  • Mohan's actual share = Rs. 19,000
  • Deficiency = Rs. 25,000 - Rs. 19,000 = Rs. 6,000

4. Distribution of Deficiency (in 2:1 ratio between Kavita and Lalit):

  • Kavita's share = 2/3×63 \times 6,000 = Rs. 4,000
  • Lalit's share = 1/3×63 \times 6,000 = Rs. 2,000

5. Final Distribution:

  • Kavita = Rs. 38,000 - Rs. 4,000 = Rs. 34,000
  • Lalit = Rs. 19,000 - Rs. 2,000 = Rs. 17,000
  • Mohan = Rs. 19,000 + Rs. 6,000 = Rs. 25,000 (Guaranteed Amount)
Exercise: Do It Yourself | Q: 1 | (Page 32)
For More Understanding

Explanation

This question involves guarantee of minimum profit to a new partner. The context shows similar examples where deficiency arising from guaranteed amount is borne by existing partners in their profit sharing ratio. Following the pattern from the textbook examples (like Rahul getting 1/4 share), Mohan's share is taken as 1/4. The deficiency of Rs. 6,000 (Rs. 25,000 - Rs. 19,000) is borne by Kavita and Lalit in their original ratio of 2:1, resulting in Kavita bearing Rs. 4,000 and Lalit bearing Rs. 2,000. The final distribution ensures Mohan receives his guaranteed minimum of Rs. 25,000.

Solution Steps

  1. Step 1: Calculate new profit sharing ratio assuming Mohan gets 1/4 share - Remaining 3/4 shared by Kavita and Lalit in 2:1 ratio, giving ratio 2:1:1

  2. Step 2: Calculate each partner's share - Kavita: Rs. 38,000, Lalit: Rs. 19,000, Mohan: Rs. 19,000

  3. Step 3: Calculate deficiency - Rs. 25,000 (guaranteed) - Rs. 19,000 (actual) = Rs. 6,000

  4. Step 4: Distribute deficiency between Kavita and Lalit in 2:1 ratio - Kavita: Rs. 4,000, Lalit: Rs. 2,000

  5. Step 5: Calculate final distribution after adjusting deficiency - Kavita: Rs. 34,000, Lalit: Rs. 17,000, Mohan: Rs. 25,000

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