Question

The firm of Amish, Nitish, and Misha, who have been sharing profits in the ratio of 2 : 2 : 1, have existed for some years. Misha wanted that she should get an equal share in the profits with Amish and Nitish, and she further wished that the change in the profit-sharing ratio should come into effect retrospectively for the last three years. Amish and Nitish had agreement for this.

The profits for the last three years were:

2021 −  22	₹ 1,15,000
2022 − 23	₹ 1,24,000
2023 − 24	₹ 2,11,000

Show the adjustment of profits by means of a single adjustment journal entry. Show your working clearly.

Answer 1

Total profit of last three years = ₹ 1,15,000 + ₹ 1,24,000 + ₹ 2,11,000

= ₹ 4,50,000

Old profit sharing ratio = 2 : 2 : 1

New profit sharing ratio = 1 : 1 : 1

Adjustment Table
Particulars	Amish (₹)	Nitish (₹)	Misha (₹)
Profit already distributed in the old ratio, now debited (2 : 2 : 1)	1,80,000	1,80,000	90,000
Profit to be distributed in a new ratio, now credited (1 : 1 : 1)	1,50,000	1,50,000	1,50,000
Net effect	30,000	30,000	60,000

 

Journal Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	Amish’s Capital A/c   ...Dr.		30,000
	Nitish’s Capital A/c   ...Dr.		30,000
	To Misha’s Capital A/с			60,000
	(Being adjustment for the distribution of profit)