Question

A, B and C were partners in a firm. On 1st April, 2021, their capitals stood as ₹ 5,00,000; ₹ 2,50,000 and ₹ 2,50,000 respectively. As per provisions of the partnership deed:

1. C was entitled for a salary of ₹ 5,000 per month.
2. A was entitled for a commission of ₹ 80,000 p.a.
3. Partners were entitled to interest on capital @ 6% p.a.
4. Partners will share profits in the ratio of capitals.

Net profit for the year ended 31.03.2022 was ₹ 3,00,000, which was distributed equally, without taking into consideration the above provisions. Showing your workings clearly, pass the necessary adjustment entry for the above.

Answer 1

Statement of Adjustment
Particulars	A (₹)		B (₹)		C (₹)		Total (₹)
	Dr.	Cr.	Dr.	Cr.	Dr.	Cr.	Dr.	Cr.
Profit wrongly credited in 1 : 1 : 1	1,00,000		1,00,000		1,00,000			3,00,000
Interest on Capital @ 6%		30,000		15,000		15,000	60,000
Salary (₹ 5,000 × 12)						60,000	60,000
Commission		80,000					80,000
Profit Credited in 2 : 1 : 1.		50,000		25,000		25,000	10000
	1,00,000	1,60,000	1,00,000	40,000	1,00,000	1,00,000	3,00,000	3,00,000
	60,000 (Cr.)		60,000 (Dr.)

 

Adjusting Journal Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	B’s Capital A/c   ...Dr.		60,000	-
	To A’s Capital A/c		-	60,000
	(Being interest on capital wrongly created, now rectified.)

Working Note:

Calculation of Interest on Capital:

Interest on A’s Capital = `5,00,000 xx 6/100`

= 30,000

Interest on B’s Capital = `2,50,000 xx 6/100`

= 15,000

Interest on C’s Capital = `2,50,000 xx 6/100`

= 15,000