Guarantee of Profits( practice paper)

(Basics of Partnership)

 Topic : Guarantee of Profits

 1. State the meaning of Guarantee of Minimum profit. [1]

2. X, Y and Z were partners, sharing profits in the ratio of 2:2:1. Z was guaranteed a minimum profit of Rs.20,000. The profits of the firm for the year ended 31.3.2000 were   Rs.80,000. Prepare P&L Appropriation Account.                                             [3]

3. X and Y are sharing profits in the ratio of 3:2. Z was admitted for 1/6th share of profit with a minimum guaranteed amount of Rs.20,000. The firm earned a profit at the end of first financial year Rs.1,08,000. Find out the share of profit which X, Y and Z will get.        [3]

4. A, B and C were partners in a firm sharing profits in 2:3:5 ratio. A was guaranteed a minimum profit of Rs.1,00,000. Any deficiency on this account was to be borne by C. the net profit of the firm for the year ended 31.3.2013 was Rs.4,50,000. Prepare Profit and Loss Appropriation Account.   [3]

5. A, B and C are partners sharing profits in the ratio of 5:4:1. C is given a guarantee that his share of profits in any given year would be Rs.5,000. Deficiency, if any, would be borne by A and B equally. The profits for the year 2013 amounted to Rs.40,000. Pass necessary journal entries.   [3]

6. P, Q and R are partners in a firm. Their profit sharing ratio is 3:2:1. However, R is guaranteed a minimum amount of Rs.20,000 as share of profits every year. Any deficiency arising on that account shall be met by Q. The profits for two years ending December 31st , 2012 and 2013 were Rs.90,000 and 1,50,000 respectively. Prepare Profit and Loss Appropriation Account for two years.    [3]

7. RK, NK and VK entered into a partnership on April 1st 2013 to share profits and losses in the ratio of 4:3:3. RK, however, personally guaranteed that VK’s share of profit after charging interest on capital at 5% p.a. would not be less than Rs.80,000 p.a. The capital contributions were RK Rs.6,00,000; NK Rs.4,00,000 and VK Rs.2,00,000. The profits for the period ended December 31st 2013 were Rs.2,40,000. Show the distribution of profits.                          [3]

8. Ahmad, Bheem and Daniel are partners in a firm. On 1st April 2011 the balance in their capital accounts stood at Rs.8,00,000, Rs.6,00,000 and Rs.4,00,000 respectively. They shared profits in the proportion of 5 : 3 : 2 respectively. Partners are entitled to interest on capital @5% p.a. and salary to Bheem @ Rs.3,000 per month and a commission of Rs.12,000 to Daniel as per the provisions of the partnership deed. Ahmad’s share of profit, excluding interest on capital, is guaranteed at not less than Rs.25,000 p.a. Bheem’s share of profit, including interest on capital but excluding salary, is guaranteed at not less than Rs.55,000 p.a. Any deficiency arising on that account shall be met by Daniel. The profits of the firm for the year ended 31st March 2012 amounted to Rs.2,16,000. Prepare Profit and Loss Appropriation A/c for the year ended 31st March 2012.                           [6]

                                                        

                                                 Accountancy Challenge

                                                                         

                                                                   Challenge : 1

Vinod, Shubh and Gaurav were partners sharing profits in the ratio of 1:1:1. Their fixed capitals were Rs.2,00,000 each. Manager of the firm will be paid 10% commission after charging such commission. Vinod has advanced Rs.1,00,000 to the firm as loan on 1 July, 2012. Partnership deed is silent on interest on loan to the partner. A guaranteed amount of Rs.30,000 will be paid to Gaurav whether there is profit or loss incurred by the firm. Profit on 31st December, 2012 was Rs.25,000. Show the distribution of profit or loss to the partners.

                                                                   

                                                               Challenge : 2

The partners of a firm distributed the profit for the year ended 31st March, 2014, Rs.1,80,000 in the ratio of 3 : 2 : 1 without providing the following items :

(i) X and Y were entitled to salary of Rs.3,000 each per annum.

(ii) Y was entitled to a commission of Rs.9,000

(iii) Y and Z guaranteed to X, a minimum profit of Rs.70,000 p.a.

(iv) Profits were to be shared in the ratio of 3 : 3 : 2.

Pass necessary Journal entry for the above adjustments in the book of the firm.

                                                                   ANSWERS    

1. Guarantee is assurance of minimum profit to a partner. The guarantee may be given by one, two

or all the partners in an existing ratio or in some other agreed ratio.

2. X’s share Rs.30,000; Y’s share Rs.30,000 and Z’s share Rs.20,000 i.e.16,000 + 2,000 + 2,000

3. X’s Share Rs.52,800; Y’s share Rs.35,200; Z’s Share Rs.20,000

4. C’s Capital A/c Dr. 10,000 and A’s Capital A/c Cr.10,000

5. (i) P/L App. A/c Dr.40,000; A’s Capital A/c Cr.20,000; B’s Capital A/c Cr.16,000 and C’s

Capital A/c Cr. Rs.4,000.

(ii) A’s Capital A/c Dr. 500; Bs Capital A/c Dr.500 and C’s Capital A/c Cr.1,000.

6. Year 2012 : P’s Share Rs.45,000; Q Rs.25,000 and R Rs.20,000

Year 2013: P’s Share Rs.75,000; Q Rs.50,000 and R Rs.25,000

7. Divisible profit Rs.1,80,000; RK Rs.46,000; NK Rs.54,000; VK Rs.80,000.

8. Interest on capital : Ahmed Rs.40,000; Bheem Rs.30,000; Daniel Rs.20,000

Bheem’s SalaryRs.36,000

Commission to Daniel Rs.12,000

Profit : Ahmed’s Share Rs.39,000; Bheem Rs.25,000; Daniel Rs.14,000.

Challenge-1 : First step: Prepare Profit and Loss A/c : Interest on Vinod’s loan Rs.3,000; Manager’s

Commission Rs.2,000. Net profit transferred to P/L Adjustment A/c Rs20,000.

Second step : Prepare P/L Adjustment A/c; Give full gauranteed amount to Gaurav

Rs.30,000 and Loss Rs.10,000 will be shared by Vinod and Shubh equally.

Challenge-2 : X’s Capital A/c Dr. 17,000; Y’s Capital A/c Cr. 6,000; Z’s Capital A/c Cr.11,000