P, Q & R are partners in a partnership firm named RAWAT SOLUTIONS and sharing profits in the ratio of 4:3:1. Q retires and sold his share of profits to other partners for ₹8,100. ₹3,600 was paid by P and ₹4,500 was paid by R. Profit for the year after Q's retirement is ₹10,500.
Pass the journal entry for the distribution of profit?
Answer & explanation
Correct answer: option 3
The correct answer is option 3-
Profit and Loss Appropriation A/c Dr. ₹10,500
To P's Capital A/c ₹7,000
To R's Capital A/c ₹3,500
New share = Old share + Acquired share
P's new share = 4/8 + 1/6
= (12 +4)/24
= 16/24 or 2/3
R's new share = 1/8 + 5/24
= (3 +5)/24
= 8/24 or 1/3
New ratio = 2/3 : 1/3
= 2:1
As Q is retired from the firm and this profit is after his retirement so it will be distributed in the new ratio means 2:1.
P's share = 10,500 x 2/3
= 21,000/3
= 7,000
R's share = 10,500 x 1/3
= 3,500
Profit is distributed through profit and loss appropriation account so journal entry will be-
Profit and Loss Appropriation A/c Dr. 10,500
To P's Capital A/c 7,000
To R's Capital A/c 3,500