X, Y and Z are in Partnership, sharing profits and losses in the ratio of 3:2:1, respectively. Z’s share in the profit is guaranteed by X and Y to be a minimum of Rs. 8,000. The net profit for the year ended March 31, 2020 was Rs. 30,000. Prepare Profit and Loss Appropriation Account.
PROFIT AND LOSS APPROPRIATION ACCOUNT for the year ended March 31, 2020
| Particulars | Amount (Rs.) | Particulars | Amount (Rs.) |
|---|---|---|---|
| To Profit transferred to: | By Net Profit | 30,000 | |
| X's Capital A/c | 13,200 | ||
| Y's Capital A/c | 8,800 | ||
| Z's Capital A/c | 8,000 | ||
| Total | 30,000 | Total | 30,000 |
Working Notes:
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Calculation of Z's share as per ratio: Z's share = Rs. 30,/6 = Rs. 5,000
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Deficiency Calculation: Guaranteed amount = Rs. 8,000 Actual share = Rs. 5,000 Deficiency = Rs. 8,000 - Rs. 5,000 = Rs. 3,000
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Distribution of Deficiency: Since Z's share is guaranteed by X and Y, deficiency of Rs. 3,000 is borne by X and Y in their profit sharing ratio of 3:2. X's share = Rs. 3,/5 = Rs. 1,800 Y's share = Rs. 3,/5 = Rs. 1,200
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Final Distribution: X's share = Rs. 30,/6 - Rs. 1,800 = Rs. 15,000 - Rs. 1,800 = Rs. 13,200 Y's share = Rs. 30,/6 - Rs. 1,200 = Rs. 10,000 - Rs. 1,200 = Rs. 8,800 Z's share = Rs. 8,000 (guaranteed minimum)
Explanation
This question tests the concept of guarantee of minimum profit to a partner. When a partner's share falls short of the guaranteed amount, the deficiency is borne by the remaining partners in their profit sharing ratio. The textbook answer confirms: Profit to X Rs. 13,200; Y Rs. 8,800; Z Rs. 8,000.
Solution Steps
Step 1: Calculate Z's share as per profit sharing ratio: Rs. 30,/6 = Rs. 5,000
Step 2: Calculate deficiency: Rs. 8,000 (guaranteed) - Rs. 5,000 (actual) = Rs. 3,000
Step 3: Distribute deficiency between X and Y in ratio 3:2: X bears Rs. 1,800, Y bears Rs. 1,200
Step 4: Calculate final shares: X = Rs. 13,200, Y = Rs. 8,800, Z = Rs. 8,000