P, Q, and R entered into a partnership on April 1, 2017, to share profits in the ratio of 2:1:1. It was provided in the deed that R's share of profit will not be less than ₹ 84,000 per annum.
The loss for the year ended March 31, 2015, was ₹ 2,40,000 before allowing interest ₹ 10,800 on P's loan which is due for the current year.
Prepare profit and loss appropriation account for the year ended March 31, 2018.
Hint:
(i) ₹ 2,40,000 + ₹ 10,800 will be distributed in 2:1:1.
(ii) R's deficiency (₹ 84,000 + ₹ 62,700) will be borne by P and Q in 2:1.
Answer (1)
To prepare a Profit and Loss Appropriation Account for the year ended 31st March 2018, let's follow these steps step-by-step:
Calculate Total Loss Before Appropriation:
The loss for the year ended was ₹ 2,40,000.
Add interest on P's loan: ₹ 10,800.
Total loss to be distributed = ₹ 2,40,000 + ₹ 10,800 = ₹ 2,50,800.
Distribute Loss Among Partners in Ratio 2:1:1:
Total loss of ₹ 2,50,800 is shared in the ratio of 2:1:1
P: 4 2 × 2 , 50 , 800 = ₹1 , 25 , 400
Q: 4 1 × 2 , 50 , 800 = ₹62 , 700
R: 4 1 × 2 , 50 , 800 = ₹62 , 700
Adjust R's Share to Minimum Guaranteed Amount:
R’s minimum guaranteed profit is ₹ 84,000.
R’s calculated share is only ₹ 62,700.
Deficiency = ₹ 84,000 - ₹ 62,700 = ₹ 21,300.
Distribute the Deficiency of R's Share (₹ 21,300):
This deficiency will be borne by P and Q in the ratio 2:1.
P’s contribution: 3 2 × 21 , 300 = ₹14 , 200
Q’s contribution: 3 1 × 21 , 300 = ₹7 , 100
Prepare the Profit & Loss Appropriation Account:
Debit Side:
Loss distributed (Total Loss: ₹ 2,50,800 shared by P, Q, R)
R’s Adjusted Profit = ₹ 84,000
Credit Side:
Total loss (₹ 2,50,800)
Additional Adjustment:
Increase P’s loss by ₹ 14,200 and Q’s loss by ₹ 7,100 to cover R’s deficiency.
This ensures that R gets his guaranteed minimum profit and balances the overall distribution correctly.
