Question

P, Q and R are partners, sharing profit in ratio 3 : 2 : 1. It was agreed that
1. R would get minimum profits Rs 3,00,000,
2. Q made guarantee to the firm that he would earn minimum Rs 4,80,000, firm earned Rs 15,20,000 for the current year it included Rs 3,20,000 earned by Q. Prepare Profit and Loss Appropriation Account for distribution of profit among partners.

Answer 1

Note:
(1) Q guaranteed to earn minimum Rs 4,80,000. But he earn only Rs 3,20,000.

So, balance Rs 1,60,000 is charged from his capital account.

(2) Total profit of firm = 15,20,000 + 1,60,000 = Rs 16,80,000
R guaranteed by firm for 3,00,000 profit.

So, Balance profit 16,80,000 – 3,00,000 = Rs 13,80,000 will distributed between P and Q in 3:2 ratio.