Question

Chaman, Burman, and Aman were partners in a firm sharing profits and losses in the ratio of 3:2:1. Aman was guaranteed a minimum amount of ₹60,000 as his share of profit every year. The net profit for the year ended 31\textsuperscript{st March, 2023 amounted to ₹1,20,000. Pass necessary journal entries in the books of the firm showing the distribution of profit amongst the partners.}

Hint:

When a partner has a guaranteed profit, the adjustment is made from the remaining partners in their profit-sharing ratio.

Answer 1

Step 1: Distribution of Net Profit in the Profit-Sharing Ratio. The net profit of ₹1,20,000 is distributed among Chaman, Burman, and Aman in the ratio of 3:2:1: \[ \text{Chaman's Share} = ₹1,20,000 \times \frac{3}{6} = ₹60,000 \] \[ \text{Burman's Share} = ₹1,20,000 \times \frac{2}{6} = ₹40,000 \] \[ \text{Aman's Share} = ₹1,20,000 \times \frac{1}{6} = ₹20,000 \] Step 2: Adjustment for Aman's Guaranteed Profit. Aman is guaranteed ₹60,000, but his calculated share is only ₹20,000. Hence, an adjustment of ₹40,000 needs to be made from the profits of Chaman and Burman in their profit-sharing ratio (3:2): \[ \text{Adjustment from Chaman} = ₹40,000 \times \frac{3}{5} = ₹24,000 \] \[ \text{Adjustment from Burman} = ₹40,000 \times \frac{2}{5} = ₹16,000 \] Step 3: Final Distribution of Profit. After adjustments: \[ \text{Chaman's Final Share} = ₹60,000 - ₹24,000 = ₹36,000 \] \[ \text{Burman's Final Share} = ₹40,000 - ₹16,000 = ₹24,000 \] \[ \text{Aman's Final Share} = ₹20,000 + ₹40,000 = ₹60,000 \] Step 4: Journal Entries: \[ \begin{array}{|l|r|l|r|} \hline \textbf{Dr.} & \textbf{Amount (₹)} & \textbf{Cr.} & \textbf{Amount (₹)} \\ \hline \text{Profit and Loss A/c Dr.} & 1,20,000 & \text{Chaman's Capital A/c} & 36,000 \\ & & \text{Burman's Capital A/c} & 24,000 \\ & & \text{Aman's Capital A/c} & 60,000 \\ & \text{(Being the distribution of net profit adjusted for guaranteed profit to Aman)} & & \\ \hline \text{Chaman's Capital A/c Dr.} & 24,000 & \text{Burman's Capital A/c Dr.} & 16,000 \\ & & \text{To Aman's Capital A/c} & 40,000 \\ & \text{(Being the adjustment of guaranteed profit to Aman)} & & \\ \hline \end{array} \]