Question

Veena, Meena and Sheena are partners sharing profits in the ratio of 3:2:1. Their capitals on 1st April 2019 were ₹ 5,00,000; ₹ 3,00,000 and ₹ 2,00,000 respectively. As per the partnership deed partners are entitled to 10% p.a. interest on capital. Sheena is guaranteed a minimum profit of ₹ 45,000 p.a. Deficiency (if any) will be borne by Veena and Meena in the ratio of 3:2. The firm incurred a loss of ₹ 90,000 for the year ended 31st March 2020. Give necessary entries giving effect to the minimum guaranteed profit to Sheena.

Answer 1

The question is about adjusting the loss distribution according to the partners' capitals, interest on capital, and the guaranteed minimum profit. We need to calculate the interest on capitals, adjust the loss, and figure out how much Veena and Meena need to compensate for Sheena's guaranteed profit.

Step-by-step explanation:

To address the question of adjusting the guaranteed minimum profit for Sheena according to the partnership agreement, we must calculate interests on capitals and distribute the loss, keeping in mind Sheena's guaranteed earnings.

Veena, Meena, and Sheena have initial capitals of ₹ 5,00,000, ₹ 3,00,000, and ₹ 2,00,000 respectively and are entitled to 10% interest on these amounts. The interest amounts for a year would be ₹ 50,000 for Veena, ₹ 30,000 for Meena, and ₹ 20,000 for Sheena.

The firm faced a loss of ₹ 90,000, which should be set off against these interest amounts, resulting in an adjusted loss of ₹ 40,000.

Sheena’s guaranteed profit is ₹ 45,000, but the revised loss allocated to her would be ₹ 40,000 / 6 (due to the 1:6 share in loss) = ₹ 6,667.

To ensure Sheena receives her guaranteed profit, Veena and Meena must bear the deficiency, which is ₹ 45,000 - ₹ 6,667 = ₹ 38,333. This amount will be borne by Veena and Meena in the ratio of 3:2, leading to entries of ₹ 23,000 (approx.) and ₹ 15,333 (approx.) against their profits respectively.

Answer 2

The question involves a partnership firm's financial adjustments to ensure a guaranteed minimum profit for a partner, Sheena, despite the firm's loss, and details the journal entries necessary for this adjustment.

Step-by-step explanation:

The question concerns a partnership in which three individuals, Veena, Meena, and Sheena, are sharing profits in the ratio of 3:2:1 respectively and the allocation of interest on their capital investments. Additionally, Sheena is guaranteed a minimum annual profit of ₹ 45,000. However, due to a loss incurred by the firm, certain journal entries need to be recorded to adjust for Sheena's minimum guaranteed profit.

Step-by-Step Explanation:

1. Calculate the interest on capital for each partner, which is 10% per annum. For Veena: ₹ 5,00,000 x 10% = ₹ 50,000. For Meena: ₹ 3,00,000 x 10% = ₹ 30,000. For Sheena: ₹ 2,00,000 x 10% = ₹ 20,000.
2. Since the firm incurred a loss, no interest on capital is allocated to the partners. As a result, this interest must be reversed via a journal entry.
3. Sheena should receive a minimum profit of ₹ 45,000. Given the loss, deficiency arises. This deficiency is borne by Veena and Meena in the ratio of 3:2.
4. To account for the minimum guaranteed profit to Sheena, Veena and Meena's capital accounts are debited in their sharing ratio. The journal entry is - Veena's Capital A/c (Dr.) - Deficiency borne by Veena = ₹ 45,000 x (3/5) and Meena's Capital A/c (Dr.) - Deficiency borne by Meena = ₹ 45,000 x (2/5). Sheena's Capital A/c (Cr.) - Minimum Profit Guaranteed = ₹ 45,000.
5. The overall loss of the firm is then adjusted for the guaranteed profit to Sheena, impacting Veena and Meena's capital balances accordingly.

These journal entries reflect the adjustments needed to honor the partnership agreement and to provide Sheena with her guaranteed minimum profit. It's important that each partner's capital account reflects these changes to maintain the accuracy of the firm's financial records.