Question

Aman, Raj and Suresh were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 8. Suresh was guaranteed a minimum profit of ₹5,00,000 per year. Any deficiency on this account was to be borne by Aman and Raj equally. The net profit of the firm for the year ended 31st March, 2024 was ₹8,00,000.
Prepare Profit and Loss Appropriation Account of Aman, Raj and Suresh for the year ended 31st March, 2024.

Hint:

When a partner has a guaranteed profit, compare actual profit share with guarantee and adjust the deficiency as per agreement.

Answer 1

Step 1: Calculate profit shares in the ratio 5 : 3 : 8
Total ratio = \( 5 + 3 + 8 = 16 \)
Aman’s share = \( \frac{5}{16} \times 8,00,000 = ₹2,50,000 \)
Raj’s share = \( \frac{3}{16} \times 8,00,000 = ₹1,50,000 \)
Suresh’s share = \( \frac{8}{16} \times 8,00,000 = ₹4,00,000 \)

Step 2: Apply minimum guarantee
Suresh was guaranteed ₹5,00,000 but got only ₹4,00,000
Deficiency = ₹5,00,000 – ₹4,00,000 = ₹1,00,000
To be borne equally by Aman and Raj
So, Aman’s sacrifice = ₹50,000
Raj’s sacrifice = ₹50,000

Final adjusted shares:
Aman = ₹2,50,000 – ₹50,000 = ₹2,00,000
Raj = ₹1,50,000 – ₹50,000 = ₹1,00,000
Suresh = ₹4,00,000 + ₹1,00,000 = ₹5,00,000

Profit and Loss Appropriation Account for the year ended 31^st March, 2024

 

Dr.		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Aman’s Capital A/c	₹2,00,000	By Net Profit	₹8,00,000
To Raj’s Capital A/c	₹1,00,000
To Suresh’s Capital A/c	₹5,00,000
Total	₹8,00,000	Total	₹8,00,000