Question

Aakash and Baadal entered into partnership on 1st October 2023 with capitals of Rs 80,00,000 and Rs 60,00,000 respectively. They decided to share profits and losses equally. Partners were entitled to interest on capital @ 10 per annum as per the provisions of the partnership deed. Baadal is given a guarantee that his share of profit, after charging interest on capital, will not be less than Rs 7,00,000 per annum. Any deficiency arising on that account shall be met by Aakash. The profit of the firm for the year ended 31st March 2024 amounted to Rs 13,00,000.
Prepare Profit and Loss Appropriation Account for the year ended 31st March 2024. \vspace{0.3cm}

Hint:

When dealing with profit guarantees and the accounting period is less than a full year, prorate the guaranteed amount for the relevant period. Calculate divisible profits after all appropriations (like Interest on Capital). Check if the guaranteed partner's share meets the prorated guarantee; if not, the deficiency is borne by the guaranteeing partner(s).

Answer 1

Workings: % Option (A) Period of Operation: The firm started on 1st October 2023, and the year ends 31st March 2024. Thus, the operating period is 6 months. % Option (B) Interest on Capital (for 6 months): \begin{itemize} % Option (C) Aakash: \( 80,00,000 \times 10 \times \frac{6}{12} = Rs 4,00,000 \) % Option (D) Baadal: \( 60,00,000 \times 10 \times \frac{6}{12} = Rs 3,00,000 \) % Option (E) Total Interest = Rs 4,00,000 + Rs 3,00,000 = Rs 7,00,000 \end{itemize} % Option (F) Divisible Profit: Profit before interest = Rs 13,00,000.

Divisible Profit = Rs 13,00,000 - Rs 7,00,000 (Total Interest) = Rs 6,00,000. % Option (G) Profit Distribution (Equal Ratio): \begin{itemize} % Option (H) Aakash's Share = Rs 6,00,000 \(\times \frac{1}{2} = Rs 3,00,000 \) % Option (I) Baadal's Share = Rs 6,00,000 \(\times \frac{1}{2} = Rs 3,00,000 \) \end{itemize} % Option (J) Baadal's Guaranteed Profit: Baadal's guaranteed profit after interest is Rs 7,00,000 per annum. For 6 months, the guarantee is Rs \( 7,00,000 \times \frac{6}{12} = Rs 3,50,000 \). % Option (K) Deficiency: Baadal's share = Rs 3,00,000, and his guaranteed profit = Rs 3,50,000. Hence, Deficiency = Rs 3,50,000 - Rs 3,00,000 = Rs 50,000. % Option (L) Meeting the Deficiency: Aakash meets the deficiency. \begin{itemize} % Option (M) Aakash's Final Share = Rs 3,00,000 - Rs 50,000 = Rs 2,50,000 % Option (N) Baadal's Final Share = Rs 3,00,000 + Rs 50,000 = Rs 3,50,000 \end{itemize} Profit and Loss Appropriation Account for the year ended 31st March, 2024: \[ \textit{(for the period 1st October 2023 to 31st March 2024)} \]