Question

The fixed capital accounts of Shiv, Azeem and Angad, sharing profits and losses in the ratio of 2 : 2 : 1, stood at ₹ 4,00,000, ₹ 6,00,000 and ₹ 2,00,000, respectively.

The accounts for the year ended 31^st March, 2022, were drawn up and closed, and the current account balances of the partners were determined to be:

Shiv ₹ 35,000, Azeem ₹ 40,000 and Angad ₹ 25,000.

Subsequently, the following errors were discovered on 1^st April, 2022:

1. Interest on capital @ 10% per annum had been allowed to the partners, although there was no provision for it in the partnership deed.
2. A salary of ₹ 16,000 per annum to Shiv and ₹ 20,000 per annum to Azeem was not allowed to them, despite a provision for salary in the partnership deed.
3. A commission of ₹ 24,000 was not allowed to Angad, despite a provision for commission in the partnership deed.

You are required to prepare the adjusted current accounts of the partners on 1^st April, 2022, to rectify the lapse in accounting.

Answer 1

Dr.	Adjusted Current Accounts as on 1st April 2022						Cr.
Particulars	Shiv (₹)	Azeem (₹)	Angad (₹)	Particulars	Shiv (₹)	Azeem (₹)	Angad (₹)
To Interest on Capital A/c	40,000	60,000	20,000	By Balance b/d	35,000	40,000	25,000
				By Partner’s Salary A/c	16,000	20,000	-
				By Partner’s Commission A/c	-	-	24,000
				By Profit on readjustment	24,000	24,000	12,000
	75,000	84,000	61,000		75,000	84,000	61,000

Working Note:

Profit on Readjustment = Sum of Interest on Capital Debited − (Salary and Commission Credited)

= (40,000 + 60,000 + 20,000) − (16,000 + 20,000 + 24,000)

= 1,20,000 − 60,000

= ₹ 60,000

Profit on readjustment = ₹ 60,000 [credited to partners in their profit-sharing ratio]