Question

Dhruv and Ansh are partners in a firm sharing profits and losses: Dhruv 75% and Ansh 25%. Their Balance Sheet as at 31st March, 2021 is given below:

BALANCE SHEET OF DHRUV AND ANSH As at 31st March, 2021
Liabilities	₹	₹	Assets		₹
Sundry Creditors		49,000	Cash		62,000
Workmen Compensation Reserve		5,000	Sundry Debtors	18,500
Capital A/c:			Less: Provision for Doubtful Debts	(1,500)	17,000
Dhruv	30,000		Land and Building		25,000
Ansh	20,000	50,000
		1,04,000			1,04,000

On 1st April 2021, Kavi is admitted as a new partner on the following terms:

1. Land and building is found to be valued at 25% above cost. It is decided to bring it to its cost.
2. Bad debts amounting to ₹ 1,800 are to be written off. The remaining debtors are good.
3. Creditors include an amount of ₹ 5,000 received as commission from Amar. The necessary adjustment is required to be made.
4. The liability on Workmen Compensation Reserve is determined at ₹ 3,000.
5. Kavi is to pay ₹ 15,000 to the existing partners as premium for Goodwill for 20% of the future profits of the firm. He is also to bring in ₹ 25,000 as capital.

To adjust the creditors in adjustment (iii):

विकल्प

• Commission A/c will be credited with 5,000

• Creditors A/c will be credited with ₹5,000

• Amar's A/c will be debited with ₹5,000

• Creditors A/c will be debited with ₹ 5,000

Answer 1

Creditors A/c will be debited with ₹ 5,000

Explanation:

An amount of ₹ 5,000 received as a commission from Amar was mistakenly recorded inside the Sundry Creditors Account (meaning Creditors was incorrectly increased/credited).

To correct this, we need to remove this amount from the Creditors liability and record it under the correct income account:

Sundry Creditors A/c - Debited (to decrease the liability)

Commission Received A/c - Credited (to record the income)