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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