Question 28 of 50intermediate🔧 ApplyNumerical4 marks

Ram, Raj and George are partners sharing profits in the ratio 5:3:2. According to the partnership agreement George is to get a minimum amount of Rs. 10,000 as his share of profits every year. The net profit for the year 2013 amounted to Rs. 40,000. Prepare the Profit and Loss Appropriation Account.

Correct Answer

Dr. Profit and Loss Appropriation Account for the year ended 2013 Cr.

ParticularsAmount (Rs.)ParticularsAmount (Rs.)
To George’s Capital A/c10,000By Profit and Loss A/c (Net Profit)40,000
To Ram’s Capital A/c18,750
To Raj’s Capital A/c11,250
Total40,000Total40,000

Working Notes:

1. Calculation of Share of Profits: Profit for the year = Rs. 40,000. Profit Sharing Ratio = 5 : 3 : 2. Ram’s Share = 40,000 × (5/10) = Rs. 20,000. Raj’s Share = 40,000 × (3/10) = Rs. 12,000. George’s Share = 40,000 × (2/10) = Rs. 8,000.

2. Calculation of Deficiency: Guaranteed Amount to George = Rs. 10,000. Actual Share of George = Rs. 8,000. Deficiency = 10,000 - 8,000 = Rs. 2,000.

3. Adjustment of Deficiency: The deficiency of Rs. 2,000 is to be borne by Ram and Raj in their profit-sharing ratio of 5:3. Ram’s Contribution = 2,000 × (5/8) = Rs. 1,250. Raj’s Contribution = 2,000 × (3/8) = Rs. 750.

4. Final Share of Partners: Ram = 20,000 - 1,250 = Rs. 18,750. Raj = 12,000 - 750 = Rs. 11,250. George = 8,000 + 2,000 = Rs. 10,000.

Exercise: Numerical Questions | Q: 8 | (Page 39)
For More Understanding

Explanation

The question involves a guarantee of minimum profit to a partner. George is guaranteed a minimum of Rs. 10,000, but his calculated share is only Rs. 8,000. The deficiency of Rs. 2,000 is met by the remaining partners (Ram and Raj) in their profit-sharing ratio (5:3). The final distribution ensures George receives exactly the guaranteed amount, while Ram and Raj absorb the shortfall.

Solution Steps

  1. Step 1: Calculate each partner's share based on the profit-sharing ratio (5:3:2). Ram gets Rs. 20,000, Raj gets Rs. 12,000, and George gets Rs. 8,000.

  2. Step 2: Identify the deficiency for George. Guaranteed amount (Rs. 10,000) - Actual share (Rs. 8,000) = Rs. 2,000.

  3. Step 3: Distribute the deficiency of Rs. 2,000 between Ram and Raj in their ratio (5:3). Ram bears Rs. 1,250 and Raj bears Rs. 750.

  4. Step 4: Deduct the deficiency share from Ram and Raj's original shares and add it to George's share to find the final amounts: Ram (Rs. 18,750), Raj (Rs. 11,250), George (Rs. 10,000).

  5. Step 5: Prepare the Profit and Loss Appropriation Account crediting the partners with their final shares.

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