question_answer

A and B are partners with capitals of Rs. 5,00,000 and Rs. 4,00,000 respectively, on which they are entitled to interest at 10% p.a. They divide profits in the ratio of 2 : 1 . They take C into partnership with l/4th share of profits and guaranteed that his share of profit will not be less than Rs. 2,00,000. C brought Rs. 3,00,000 as his capital. Any excess profits received by C over his l/4th share will be borne by A and B in the ratio of 4 : 1. Profits at the end of the year before allowing interest on capitals amounted to Rs. 7,20,000. Distribute the profits.

Answer:

Calculation of New Profit Sharing Ratio Suppose the Profit of the Whole Firm = 1 Share given to \[C=\frac{1}{4}\] Thus, the Remaining Profit \[=1-\frac{1}{4}=\frac{3}{4}\] Now A and B will share this \[\frac{3}{4}\] remaining Profit in their old profit sharing ratio. Thus A?s Share \[=\frac{2}{3}\times \frac{3}{4}=\frac{2}{4}\]             B?s Share \[=\frac{1}{3}\times \frac{3}{4}=\frac{1}{4}\]             \[C's\,Share=\frac{1}{4}\] Thus, the new profit sharing ratios of A, B and C will be \[\frac{2}{4}:\frac{1}{4}:\frac{1}{4}=2:1:1\] Calculation of Share of Excess Profit to be Borne by A and B

Particulars		A (Rs.)	B (Rs.)	C (Rs.)
Total Profit	7,20,000
(-) Interest on Capitals
(10% on Rs. 12,00,000)	(1,20,000)
	6,00,000
Divide in New Ratio 2 : 1 : 1		3,00,000	1,50,000	1,50,000
Minimum Guaranteed Amount Payable to C is Rs.	2,00,000
Therefore, 2,00,000 ? 1,50,000 = 50,000 Excess Payable to C will be Borne by A and be in 4 : 1		(-) 40,000	(-) 10,000	(+) 50,000
		2,60,000	1,40,000	2,00,000

            Dr                                             Profit and Loss Appropriation Account                                               Cr

Particulars		Amt (Rs.)	Particulars	Amt (Rs.)
To Interest on Capital			By Profit	7,20,000
A	50,000
B	40,0000
C	30,000	1,20,000
To Profit Transferred to
A?s Capital A/c	2,60,000
B?s  Capital A/c	1,40,000
C?s Capital A/c	2,00,000	6,00,000
		7,20,000		7,20,000