Partnership accounts:minimum share of profit

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CA CLA (Querist)

29 May 2014 Hi... I understand the difference between a charge and appropriation. But, I need to know that would the minimum guaranteed amount to the partner not be a charge? as it is to be paid irrespective of the profit or losses of the firm. If this is so, why do we show it in profit and loss appropriation account and not profit and loss account?

Rupesh Jain

Rupesh Jain (Expert)

29 May 2014 AS you know profit after tax will tfr. in Profit and loss appropriation a/c its below the line not above the line.

above the line means profit share to partners is expense not the profit share to partners.

under the income tax act Shares to partners not the expense. its distribute/ tfr to reserve after payment of tax.

CA CLA

CA CLA (Querist)

29 May 2014 it is correct that it is not an expense but is it not a charge? because the guaranteed amount would be paid irrespective of the profits or losses.so should it ... that is the guaranteed amount to some specific partner be shown in profit and loss account.

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