Pinki, Deepti and Kaku are partner’s sharing profits in the ratio of 5:4:1. Kaku is given a guarantee that his share of profits in any given year would not be less than Rs. 5,000. Deficiency, if any, would be borne by Pinki and Deepti equally. Profits for the year amounted to Rs. 40,000. Record necessary journal entries in the books of the firm showing the distribution of profit.
Step 1: Calculate shares as per profit sharing ratio. Profit = Rs. 40,000; Ratio = 5:4:1. Pinki's share = 5/,000 = Rs. 20,000. Deepti's share = 4/,000 = Rs. 16,000. Kaku's share = 1/,000 = Rs. 4,000.
Step 2: Determine deficiency. Guaranteed amount to Kaku = Rs. 5,000. Actual share = Rs. 4,000. Deficiency = Rs. 5,000 - Rs. 4,000 = Rs. 1,000.
Step 3: Apportion deficiency. Deficiency to be borne by Pinki and Deepti equally. Thus, Pinki bears Rs. 500, Deepti bears Rs. 500.
Step 4: Adjust shares. Pinki's final share = Rs. 20,000 - Rs. 500 = Rs. 19,500. Deepti's final share = Rs. 16,000 - Rs. 500 = Rs. 15,500. Kaku's final share = Rs. 4,000 + Rs. 1,000 = Rs. 5,000.
Step 5: Journal entry. Profit and Loss Appropriation A/c Dr. 40,000 To Pinki's Capital A/c 19,500 To Deepti's Capital A/c 15,500 To Kaku's Capital A/c 5,000 (Being profit distributed after adjusting guarantee)
Explanation
The question involves guarantee of minimum profit to a partner. The deficiency is borne by other partners as per agreement. The solution follows the standard procedure: calculate shares as per ratio, find deficiency, adjust among guarantors, and then pass journal entry for distribution. The answer matches the textbook answer: deficiency borne by Pinki and Deepti Rs.500 each.
Solution Steps
Calculate shares as per ratio: Pinki Rs.20,000, Deepti Rs.16,000, Kaku Rs.4,000.
Determine deficiency: Rs.1,000.
Apportion deficiency equally: Pinki Rs.500, Deepti Rs.500.
Adjust shares: Pinki Rs.19,500, Deepti Rs.15,500, Kaku Rs.5,000.
Pass journal entry for distribution.