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Mujeeb Rahiman C
HSST Commerce
GHSS Pattikkad
Malappuram Dt.
✉️ mujeebchemmala@gmail.com
9995983075 �
Chapter -1
Accounting for Partnership
Basic Concepts
Guarantee of Profit to a Partner
Sometimes a partner is admitted into the firm with a guarantee of certain minimum amount by way of his share of profits of the firm.
Guarantee of Profit to a Partner
The minimum guaranteed amount shall be paid to such new partner when his share of profit as per the profit sharing ratio is less than the guaranteed amount.
Such assurance may be given by all the old partners in a certain ratio or by any of the old partners.
For example, A and B are partners in a firm sharing profits in the ratio of 2:3, decide to admit C into their firm, giving him the guarantee of a minimum of Rs.25,000 as his share in firm’s profits. The firm earned a profit of Rs. 1,20,000 during the year and the agreed profit sharing ratio between the partners is decided as 2:3:1.
A’s share = 1,20,000 x 2/6 = Rs. 40,000
Guaranteed minimum of profit to C Rs.25,000
This shall be borne by the guaranteeing partners A and B in their old profit sharing ratio. Which in this case is 2:3
C’s share = 1,20,000 x 1/6 = Rs. 20,000
B’s share = 1,20,000 x 3/6 = Rs. 60,000
Deficiency of profit to C = 25,000-20,000 = Rs. 5000
A’s share in the deficiency = 5,000 x 2/5 = Rs.2,000
A’s share = 1,20,000 x 2/6 = Rs. 40,000
Guaranteed minimum of profit to C Rs.25,000
This shall be borne by the guaranteeing partners A and B in their old profit sharing ratio. Which in this case is 2:3
C’s share = 1,20,000 x 1/6 = Rs. 20,000
B’s share = 1,20,000 x 3/6 = Rs. 60,000
Deficiency of profit to C = 25,000-20,000 = Rs. 5000
B’s share in the deficiency = 5,000 x 3/5 = Rs.3,000
A will get Rs. 38,000 (40,000 - share in deficiency Rs. 2,000)
B will get Rs. 57,000 (60,000 - share in deficiency Rs. 3,000)
C will get Rs. 25,000 (Rs. 20,000 + Rs. 2,000 + Rs. 3,000).
The total profit will be distributed as follows
If only one partner gives the guarantee, say in the above case, only B gives the guarantee, the whole amount of deficiency (Rs.5,000) will be borne by him only.
In this case profit will be distributed as follows
A will get Rs. 40,000
C will get Rs. 25,000 (20,000 + 5,000)
B will get Rs. 55,000 (60,000 – deficiency Rs. 5000)
A’s share = Rs. 40,000 (1,20,000 x 2/6)
C’s share = Rs. 20,000 (1,20,000 x 1/6)
B’s share = Rs. 60,000 (1,20,000 x 3/6)
Mohan, Sohan and Rahul are partners with capitals of Rs. 2,00,000, Rs. 1,00,000 and Rs. 1,00,000 respectively. They share profits and losses in the ratio of 2:1:1. According to the terms of partnership agreement, Rahul has to get a minimum of Rs. 50,000 irrespective of the profits of the firm. 10% interest is to be allowed on capital to all partners. The profit of the firm before charging interest on capital for the year ending March 31, 2020 was Rs. 2,00,000.
Prepare Profit and Loss Appropriation Account
Deficiency of profit to Rahul = 50,000 - 40,000
= 10,000
Mohan’s share = 1,60,000 x 2/4 = 80,000
Rahul’s share = 1,60,000 x 1/4 = 40,000
Sohan’s share = 1,60,000 x 1/4 = 40,000
Guaranteed minimum of profit to Rahul = 50,000
Interest on capital
Mohan Rs. 20,000, Sohan Rs. 10,000 and Rahul Rs. 10,000
Total interest on capital = 20,000 + 10,000 + 10,000 = 40,000
2:1:1
Profit distributed among partners = 2,00,000 – 40,000 = 1,60,000
Deficiency of profit to Rahul = 50,000 - 40,000
= 10,000
Mohan’s share in the deficiency = 10,000 x 2/3 = 6,667
Sohan’s share in the deficiency = 10,000 x 1/3 = 3,333
Mohan’s share = 1,60,000 x 2/4 = 80,000
Rahul’s share = 1,60,000 x 1/4 = 40,000
Sohan’s share = 1,60,000 x 1/4 = 40,000
Guaranteed minimum of profit to Rahul = 50,000
This shall be borne by Mohan and Sohan in their old profit sharing ratio. Which in this case is 2:1
2:1:1
2:1
In this case profit will be distributed as follows
Mohan’s Share = 80,000 – 6,667 = Rs. 73,333
Rahul’s Share = 40,000 + 6,667 + 3,333 = Rs. 50,000
Sohan’s Share = 40,000 – 3,333 = Rs. 36,667
Profit and Loss Appropriation A/c
Amount
Amount
Particulars
Particulars
Profit and Loss Account
200,000
200,000
200,000
Less share in deficiency 6,667
73,333
Sohan’s Capital Account
Less share in deficiency 3,333
36,667
Rahul’s Capital Account
Add deficiency received from
Sohan 3,333
50,000
Mohan 6,667
Mohan’s Share = 80,000 – 6,667 = Rs. 73,333
Rahul’s Share = 40,000 + 6,667 + 3,333 = Rs. 50,000
Sohan’s Share = 40,000 – 3,333 = Rs. 36,667
Interest on capital
40,000
Mohan’s Capital Account
Share of Profit 40,000
Share of Profit 80,000
Share of Profit 40,000
Mahesh and Dinesh share profits and losses in the ratio of 2:1. From January 01, 2019 they admit Rakesh into their firm who is to be given a share of 1/10 of the profits with a guaranteed minimum of Rs. 25,000. Mahesh and Dinesh agree to bear any deficiency on account of guarantee to Rakesh in the ratio of 3:2 respectively. The new profit sharing ratio will be 6:3:1. The profits of the firm for the year ending December 31, 2019 amounted to Rs. 1,20,000. Prepare Profit and Loss Appropriation Account.
Deficiency of profit to Rakesh = 25,000 - 12,000
= 13,000
Mahesh’s share in the deficiency = 13,000 x 3/5 = 7,800
Dinesh’s share in the deficiency = 13,000 x 2/5 = 5,200
Mahesh’s share = 1,20,000 x 6/10 = 72,000
Rakesh’s share = 1,20,000 x 1/10 = 12,000
Dinesh’s share = 1,20,000 x 3/10 = 36,000
Guaranteed minimum of profit to Rakesh = 25,000
This shall be borne by Mahesh and Dinesh in the agreed ratio 3:2
6:3:1
3:2
Profit and Loss Appropriation A/c
Amount
Amount
Mahesh’s Capital Account
Particulars
Particulars
Profit and Loss Account
120,000
120,000
120,000
Less share in deficiency 7,800
64,200
Dinesh’s Capital Account
Less share in deficiency 5,200
30,800
Rakesh’s Capital Account
Add deficiency received from
Dinesh 5,200
25,000
Mahesh 7,800
Mahesh’s share = 1,20,000 x 6/10 = 72,000
Rakesh’s share = 1,20,000 x 1/10 = 12,000
Dinesh’s share = 1,20,000 x 3/10 = 36,000
Mahesh’s share in the deficiency = 13,000 x 3/5 = 7,800
Dinesh’s share in the deficiency = 13,000 x 2/5 = 5,200
Share of Profit 72,000
Share of Profit 36,000
Share of Profit 12,000
Guarantee of Profit to a Partner
MUJEEB RAHIMAN C
HSST COMMERCE
GHSS PATTIKKAD
MALAPPURAM DT
MUJEEB RAHIMAN C
HSST COMMERCE
GHSS PATTIKKAD
MALAPPURAM DT
MUJEEB RAHIMAN C
HSST COMMERCE
GHSS PATTIKKAD
MALAPPURAM DT