Question

Aakash and Baadal entered into partnership on 1^st October, 2023 with the capitals of ₹ 80,00,000 and ₹ 60,00,000 respectively. They decided to share profits and losses equally. Partners were entitled to interest on capital @ 10% per annum as per the provisions of the partnership deed. Baadal is given a guarantee that his share of profit, after charging interest on capital will not be less than ₹ 7,00,000 per annum. Any deficiency arising on that account shall be met by Aakash. The profit of the firm for the year ended 31^st March, 2024 amounted to ₹ 13,00,000. Prepare Profit and Loss Appropriation Account for the year ended 31^st March, 2024.

Hint:

If a partner has a guaranteed profit, check deficiency and adjust through the guaranteeing partner’s share.

Answer 1

1. Calculation of Interest on Capital: Period = 6 months (from 1^st Oct 2023 to 31^st March 2024)
Interest for Aakash = ₹ 80,00,000 × 10% × (6/12) = ₹ 4,00,000 
Interest for Baadal = ₹ 60,00,000 × 10% × (6/12) = ₹ 3,00,000 
Total interest = ₹ 7,00,000 
2. Remaining profit after interest: Net profit = ₹ 13,00,000 Less: Interest on capital = ₹ 7,00,000 Balance Profit = ₹ 6,00,000 
3. Distribution of Balance Profit equally: Each partner’s share = ₹ 3,00,000 Total for Baadal = ₹ 3,00,000 (profit) + ₹ 3,00,000 (interest) = ₹ 6,00,000 Baadal’s guaranteed minimum = ₹ 7,00,000 Shortfall = ₹ 1,00,000 This shortfall shall be borne by Aakash. 
Final Allocation: Aakash’s share = ₹ 3,00,000 – ₹ 1,00,000 = ₹ 2,00,000 
Baadal’s share = ₹ 7,00,000 
Profit and Loss Appropriation Account table { width: 80%; margin: 20px auto; border-collapse: collapse; font-family: Arial, sans-serif; } th, td { border: 1px solid black; padding: 10px; text-align: left; } th { background-color: #f2f2f2; } .total { font-weight: bold; } .note { width: 80%; margin: 10px auto; font-family: Arial, sans-serif; font-size: 14px; } 

Profit and Loss Appropriation Account

Particulars	Amount (₹)	Particulars	Amount (₹)
To Interest on Capital – Aakash	4,00,000	By Net Profit b/d	13,00,000
To Interest on Capital – Baadal	3,00,000
To Aakash’s Capital A/c	2,00,000
To Baadal’s Capital A/c	7,00,000
Total	16,00,000	Total	13,00,000

Note: There’s a deficiency of ₹ 3,00,000 in the P&L Appropriation A/c due to the guarantee adjustment. Here the deficiency of ₹ 1,00,000 is adjusted only between partners. The account technically shows the final appropriations.
Final Answer: Profit distribution completed as per guarantee.