The partners of a firm distributed the profits for the year ended 31st March 2003, Rs. 90,000 in the ratio of 3:2:1 without providing for the following adjustments. 
(i) A and C were entitled to a salary of Rs 1,500 p.a.
(ii) B was entitled to a salary of Rs4,500
(iii) B and C had guaranteed a minimum profit of Rs 35000 p.a. to A
(iv) Profits were to be shared in the ratio of 3:3:2
Pass necessary journal entry for the above adjustment in the books of the firm.

Dear Student,

Adjustment required can be calculated as follows:

 
Particulars Partner A Partner B  Partner C Firm
Profits wrongly distributed 45,000 (Dr) 30,000 (Dr) 15,000 (Dr) 90,000(Cr)
Salary to be provided   1,500 (Cr)  4,500 (Cr)   1,500 (Cr)   7,500 (Dr)
Actual Profit which needs to be distributed in 3:3:2 is (90,000-7,500)=RS. 82,500 30,937.50 (Cr) 30,937.50 (Cr) 20,625 (Cr) 82,500 (Dr)
Since Guaranteed Profit to A is Rs 35,000, so difference of Rs. 4062.5 would be shared by B & C in their profit sharing ratio i.e 3:2 4062.50 (Cr) 2437.50 (Dr)   1625 (Dr) NIL
Net Adjustment  8,500 (Dr) 3,000 (Cr)  5,500 (Cr) NIL
         

So, the adjustment entry would be as follows:
Journal
Particulars L.F. Debit
Amount
(Rs)
Credit
Amount
(Rs)
A's Capital A/c Dr.    8,500  
  To B's Capital A/c       3,000
   To C's Capital A/c       5,500
(Being adjustment entry passed for required corrections)        

Regards,

 

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