Question

X, Y and Z entered into partnership on 1st October, 2017 to share profits and losses in the ratio of 4 : 3 : 3. X, personally guaranteed that Z’s share of profit after charging interest on capital @ 10% p.a. would not be less then Rs. 80,000 in any year. The capital contributions were: X Rs. 3,00,000, Y Rs. 2,00,000 and Z Rs. 1,50,000. The profit for the year ended 31st March, 2018 amounted to Rs. 1,60,000. Prepare Profit and Loss Appropriation Account.

Answer 1

Note: Z is admitted on 1^st October,2017 and profit is ascertained on march 31,2018 therefore interest on capital is to be calculated for 6 months and guaranteed amount is considered as Rs.40,000, i.e. half of the total amount.