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Three Chartered Accountants A, B and C form a partnership, profits being shared in the ratio of 3 : 2 : 1 subject to the following: (a) C’s share of profit guaranteed to be not less than ₹ 15,000 p.a. (b) B gives a guarantee to the effect that gross fee earned by him for the firm shall be equal to his average gross fee of the preceeding five years when he was carrying on profession alone, which on an average works out at ₹ 25,000. The profit for the first year of the partnership are ₹ 75,000. The gross fee earned by B for the firm is ₹ 16,000. You are required to show Profit and Loss Appropriation Account after giving effect to the above. |
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Answer» n: Profit and Loss APPROPRIATION Account Dr Cr Particulars Rs. Particulars Rs.To Profit transferred to : By Profit and Loss A/c 75,000 A's Capital A/c 41,400 By B's Capital A/c 9,000 B's Capital A/c 27,600 (Deficiency in Revenue) 9,000 Cs Capital A/c 15.000 84,000 84,000 84,000 Working Notes : Deficiency in revenue guaranteed by B = 25,000 - 16,000 = 9,000 Profit to be DISTRIBUTED AMONG Partners = 75,000 + B's deficiency = Rs.75,000 + Rs.9,000 = Rs.84,000 Profit Sharing ratio = 3 : 2 : 1 A's Profit Share =84,000 x =42,000 B's Profit Share =84,000 x =28,000 Cs Profit Share = 84,000 x = 14,000 C is guaranteed of minimum profit of Rs.15,000 Deficiency in Cs Profit Share = Rs.15,000 - Rs.14,000 = Rs.1,000 Deficiency borne by A =1,000 x =600 Deficiency borne by B=1,000 x =400 Therefore, Final Profit Share of A = Rs.42,000 -Rs. 600 = Rs.41,400 Final Profit Share of B = Rs.28,000 - Rs.400 =Rs. 27,600" Final Profit Share of C = Rs.14,000 +Rs. 1,000 = Rs.15,000 The answer is different from one provided in the book as the deficiency of Rs.9,000 that was guaranteed by B to the firm WOULD not be deducted from his share as he is bearing it in FORM of profit. |
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