A and b are partners sharing profit and losses in the ratio of 3:2 the...
Calculation of Profit and Loss Appropriation Account
Step 1: Calculation of Profit Before Appropriation
Profit and Loss Account:
Particulars Amount
Profit for the year ended 75000
Add: Deficiency 7500
Total 82500
Step 2: Calculation of New Profit Sharing Ratio
Old profit sharing ratio of A and B = 3:2
Total old ratio = 3 + 2 = 5
New ratio of A, B and C = 3:2:1
Total new ratio = 3 + 2 + 1 = 6
Step 3: Calculation of Share of Profits for A and B
Share of profit for A = (3/5) * 82500 = 49500
Share of profit for B = (2/5) * 82500 = 33000
Step 4: Calculation of Share of Profit for C
Share of profit for C = (1/6) * 82500 = 13750
Less: Amount granted to C = 15000
C has suffered a loss of 1250 which will be borne by A and B in their old profit sharing ratio of 3:2
Step 5: Calculation of Total Profit Shared
Total profit shared = Share of profit for A + Share of profit for B + Share of profit for C - Amount granted to C
Total profit shared = 49500 + 33000 + (-1250) - 15000
Total profit shared = 65750
Step 6: Preparation of Profit and Loss Appropriation Account
Profit and Loss Appropriation Account:
Particulars Amount
Profit and Loss Account 82500
Add: C's share of profit (1/6) 13750
Less: Amount granted to C 15000
Less: C's loss (1250)
Total 65750
Less: A's share of profit (49500)
Less: B's share of profit (33000)
Balance (Deficiency) Nil
Explanation
In the given question, A and B are partners sharing profit and losses in the ratio of 3:2. They admit C for 1/6 share in profits and C was granted the amount of 15000 which was borne by A and B equally. In case of deficiency, the profit for the year ended is 75000 and the new profit sharing ratio is 3:2:1.
The first step is to calculate the profit before appropriation which is 82500 (75000 + 7500). The second step is to calculate the new profit sharing ratio which is 3:2:1. The third step is to calculate the share of profits for A and B which is 49500 and 33000 respectively. The fourth step is to calculate the share of profit for C which is 13750 but as C was granted the amount of 15000, C has suffered a loss of 1250 which will be borne by A and B in their old profit sharing ratio of 3:2.
The fifth step is to calculate the total profit shared which is 65750. The last step is to