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.
|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)|
|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|
|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.