Question

There are three partners in a firm named Rohan, Sohan and Mohan sharing profits in the ratio of 2:2:1. According to partnership deed, Mohan has to get a minimum profit of 7,000 irrespective of profits of the firm. Any excess payable to Mohan will be borne by Rohan. Prepare the profit and loss appropriation account showing the distribution of profits among the partners in case the profits for the year 2014 are (i) Rs. 30,000 and (ii) Rs. 45,000.

Answer 1

(i) In case the profit is Rs.30,000: Mohan’s guaranteed share is Rs. 7,000 while he would get Rs. 6,000 in absence of any guarantee. The excess of the guaranteed amount over his normal share of profit will be borne by Rohan. Sohan will remain unaffected and get his normal share of profit.

Profit and Loss Appropriation Account For the year ending 31^st December, 2014

(ii) In case the profits are Rs.45,000 In this case, Mohan is getting Rs. 9,000 as his share of profit, this is more than his guaranteed share. Hence,Rohan will not have to make any sacrifice

Profit and Loss Appropriation Account For the year ending 31^st December, 2014.