Question

Abhay and Sujoy entered into partnership on 1st April, 2024 with capitals of \u20b9 80,00,000 and \u20b9 60,00,000 respectively. The partners decided to share profits in the ratio of their capital contribution. They withdrew \u20b9 6,00,000 and \u20b9 4,00,000 respectively during the year. The partners were charged interest on drawings @ 10% per annum as per the provisions of the partnership deed. Abhay\u2019s share of profit was guaranteed by Sujoy at a minimum of \u20b9 3,50,000 per annum. The profit of the firm for the year ended 31st March, 2024 amounted to \u20b9 6,50,000. Prepare Profit and Loss Appropriation Account of the firm for the year ended 31st March, 2024.

Hint:

Always check guarantee clauses after computing actual profit share and adjust only if actual share falls short of guaranteed amount.

Answer 1

Step 1: Interest on Drawings Calculation

Abhay: 10% of ₹6,00,000 = ₹60,000

Sujoy: 10% of ₹4,00,000 = ₹40,000

Step 2: Total Profit Available for Distribution

Net Profit = ₹6,50,000 (initial) + ₹60,000 (Abhay's drawings interest) + ₹40,000 (Sujoy's drawings interest) = ₹7,50,000

Step 3: Profit Distribution Based on Ratio

Profit Sharing Ratio: Abhay : Sujoy = ₹80,00,000 : ₹60,00,000, simplified to 4 : 3

Abhay's Share = (4/7) × ₹7,50,000 = ₹4,28,571 (approximately)

Sujoy's Share = (3/7) × ₹7,50,000 = ₹3,21,429

Step 4: Guarantee Clause Verification

Abhay's calculated share (₹4,28,571) exceeds the guaranteed amount (₹3,50,000). Therefore, no adjustments are required.

Profit and Loss Appropriation Account Summary

Particulars	Amount (₹)	Particulars	Amount (₹)
To Abhay's Capital A/c	4,28,571	By Net Profit	6,50,000
To Sujoy's Capital A/c	3,21,429	By Interest on Drawings:	Abhay – 60,000
			Sujoy – 40,000
Total Credit			7,50,000
Total Debit		7,50,000

 

Final Distribution: Abhay receives ₹4,28,571, and Sujoy receives ₹3,21,429. The guarantee clause requires no adjustments.