A,B and C entered into partnership on 1st Oct. 2004 to share profits and losses in the ratio of 3:2:1. A, however personally guaranteed that C's share of profit after charging interest on capital @5%p.a. would not be less than Rs.30000 in any year. The capital contributed as capital were A-Rs.300000, B-Rs.200000 and C-Rs.100000. The profit for the period ended on 31st March 2005 were Rs. 120000. Show the distributiion of profit.

Hi Rahul

The solution to your query is provided below:
 
Profit and Loss Appropriation Account
Dr.     Cr.
Particulars Amount
Rs
Particulars Amount
Rs
Interest on Capital:   Profit and Loss A/c 1,20,000
A 7,500      
B 5,000      
C 2,500 15,000    
       
Profit transferred to:      
A’s Capital A/c 40,000      
B’s Capital A/c 35,000      
C’s Capital A/c 30,000 1,05,000    
  1,20,000   1,20,000
       


*Interest on Capital will be calculated for 6 months i.e. from Oct 01, 2004 to March 31, 2005.

C was guaranteed a minimum share of Rs 30,000 by A.
C’s share of profit = 17,500
Deficiency = 30,000 – 17,500 = Rs 12,500
A will bear this deficiency.
A’s new share = 52,500 – 12,500 = Rs 40,000
C’s new share = 17,500 + 12,500 = Rs 30,000

Hope this clarifies your doubt!

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