# A, B and C were partners. Their capitals were Rs.30,000; Rs.20,000 and Rs.10,000 respectively. According to the partnership deed they were entitled to an interest on capital at 5% p.a. In addition B was also entitled to draw a salary of Rs.500 per month. C was entitled to a commission of 5% on the profits after charging the interest on capital, but before charging the salary payable to B. The net profit for the year was Rs.30,000, distributed in the ratio of their capitals without providing for any of the above adjustments. The profits were to be shared in the ratio of 2:2:1. Pass the necessary adjustment enrty showing the workings clearly.

 Journal Entry Date Particulars L.F. Debit Amount Rs Credit Amount Rs A’s Capital A/c Dr. 5,640 To B’s Capital A/c 4,860 To C’s Capital A/c 780 (adjusting Entry has been passed to make the adjustments after the distribution of profits)

Working Notes:
 Particulars A B C Total Wrong distribution of Profit of Rs 30,000 in the ratio of their capital i.e. 3:2:1 (Dr.) 15,000 10,000 5,000 30,000 Interest on Capital (Cr.) 1,500 1,000 500 3,000 Salary to B (Cr.) 6,000 6,000 Commission to C (Cr.) 1,350 1,350 Difference (Dr.) 13,500 3,000 3,150 19,650 Right distribution of Profit of Rs 19,650 in ratio of  2:2:1  (Cr.) 7,860 7,860 3,930 19,650 5,640 (Dr.) 4,860 (Cr.) 780 (Cr.) Nil

Commission Paid to C = Rs 27,000 (Rs 30,000-Rs 3,000)*5% = Rs 1,350.

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