Page 41 - DEBKVOL-1

Chapter 2 Accounting for Partnership Firms—Fundamentals 2.13
.
Illustration 7.
A and B were in a partnership sharing profits and losses in the ratio of 3 : 2. In appreciation

of the services of C who was in receipt of a salary of ` 24,000 per annum and a commission of
5% of the net profit after charging such salary and commission, they took him into partnership
from 1st April, 2017 giving him 1/8th share of profits. The agreement provided that any excess
over his former remunera tion to which C becomes entitled will be borne by A and B in the ratio
of 2 : 3. The profit for the year ended 31st March, 2018 amounted to ` 4,44,000.

Prepare Profit and Loss Appropriation Account.

Solution: PROFIT AND LOSS APPROPRIATION ACCOUNT
Dr. for the year ended 31st March, 2018 Cr.
Particulars ` Particulars `

To Profit transferred to: By Profit and Loss A/c 4,44,000
A’s Capital A/c 2,40,000 (Net Profit)
Less: Transferred to C 4,600 2,35,400
B’s Capital A/c 1,60,000
Less: Transferred to C 6,900 1,53,100
C’s Capital A/c 44,000
Add: Transferred From A 4,600
Transferred From B 6,900 55,500
4,44,000 4,44,000

Working Notes: ` `
1. Profit for the year = ` 4,44,000
C’s Share as partner (1/8 × ` 4,44,000) 55,500
Less: Amount payable to C as employee:
Salary 24,000
5
Commission [ (` 4,44,000 – ` 24,000)] 20,000 44,000
Deficiency 105 11,500
Deficiency chargeable to A and B in the ratio of 2 : 3
∴ A to bear = 11,500 × 2/5 = ` 4,600; B to bear = 11,500 × 3/5 = ` 6,900.
2. Profits for the year available to A and B
(` 4,44,000 – C’s share as Manager ` 44,000) = ` 4,00,000
A’s Share of Profit = ` 4,00,000 × 3/5 = ` 2,40,000
A’s Share of Profit after adjusting deficiency = ` 2,40,000 – Share in deficiency
= ` 2,40,000 – ` 4,600 = ` 2,35,400
B’s Share of Profit = ` 4,00,000 × 2/5 = ` 1,60,000
B’s Share of Profit after adjusting deficiency = ` 1,60,000 – Share in deficiency
= ` 1,60,000 – ` 6,900 = ` 1,53,100.