Question

Baljeet and Jacob are partners sharing profits and losses in 4 : 1 ratio. On 1st April, 2024, capital balances of Baljeet and Jacob were ₹ 2,30,000 and ₹ 3,20,000 respectively.

The net profit for the year 2024-25 of ₹ 1,20,000 was shared equally by the partners without:

• Allowing Interest on Capital @ 10% per annum.
• Charging Interest on Drawings @ 6% per annum.

During the year, Baljeet withdrew ₹ 30,000.

You are required to pass the necessary journal entries to rectify the errors made by the firm in the distribution of profits.

Answer 1

Journal Entries in the Books of the Firm
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Baljeet’s Capital A/c   ... Dr.		60,000	-
	Jacob’s Capital A/c   ... Dr.		60,000	-
	To Profit & Loss Adjustment A/c		-	1,20,000
	(Being the profit wrongly distributed in 1 : 1 ratio, now reversed)
2.	Interest On Capital A/c   ... Dr.		55,000	-
	To Baljeet’s Capital A/c		-	23,000
	To Jacob’s Capital A/c		-	32,000
	(Being Interest On Capital allowed to partners @ 10% p.a.)
3.	Profit & Loss Adjustment A/c   ... Dr.		55,000	-
	To Interest On Capital A/c		-	55,000
	(Being Interest On Capital transferred to P&L Adjustment A/c)
4.	Baljeet’s Capital A/c   ... Dr.		900	-
	To Interest On Drawings A/c		-	900
	(Being Interest On Drawings charged to Baljeet @ 6% p.a. for 6 months)
5.	Interest On Drawings A/c     ... Dr.		900	-
	To Profit & Loss Adjustment A/c		-	900
	(Being Interest On Drawings transferred to P&L Adjustment A/c)
6.	Profit & Loss Adjustment A/c  ... Dr.		65,900	-
	To Baljeet’s Capital A/c		-	52,720
	To Jacob’s Capital A/c		-	13,180
	(Being the correct divisible profit distributed between partners in their profit-sharing ratio of 4 : 1)

Working Note:

1. Interest on Drawings:

Baljeet = `30,000 xx 6/100 xx 6/12`

= 900

2. Interest on Capital:

Baljeet = `2,30,000 xx 10/100`

= 23,000

Jacob = `3,20,000 xx 10/100`

= 32,000