Question

X, Y and Z are partners’ sharing profit in ratio 5 : 3 : 2. Z gives guarantee to firm of minimum Rs 1,20,000 earnings but Z could earn only Rs 80,000 for the firm. Total profit earned by the firm is Rs 2,00,000. Prepare Profit and Loss Appropriation Account for distribution of profit among partners.

Answer 1

Note : Z’s share of profit should only 48,000 – 40,000 = 8,000. 

Because his guarantee amount deficiency 1,20,000 – 80,000 = 40,000 is charge from his capital account.