Q. Mahesh and Dinesh share profits and losses in the ratio 2:1. From January 01, 2014 they admit Rakesh into their firm whoc is to be given a share of 1/10 of the profit with a guranteed minimum of Rs. 25,000. Mahesh and Dinesh continue to share profits as before but agree to bear as deficiency on account of gurantee to Rakesh in the ratio 3:2 respectively. The profits of the firm for the year ending December 31, 2015 amounted to Rs. 1,20,000. Prepare Profit and Loss Appropriation Account.

Dear Student,
Profit and Loss Appropriation Account
for the year ended …
Dr.     Cr.
Particulars Amount
Particulars Amount
Profit transferred to:   Profit and Loss A/c 1,20,000
Mahesh’s Capital A/c (72,000-7,800) 64,200      
Dinesh’s Capital A/c (36,000-5,200) 30,800      
Rakesh’s Capital A/c (12,000+13,000) 25,000 1,20,000    
  1,20,000   1,20,000


Share of Rakesh in profit = 1,20,000×110 = Rs 12,000 but he is to be given Rs 25,000 and such difference of Rs 13,000 should be contributed by Mahesh and Dinesh in the ratio of 3:2

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