Question

Xen, Sam and Tim are partners in a firm. For the year ended 31^st March, 2019, the profits of the firm ₹ 1,20,000, were distributed equally amongst them, without providing for the following provisions of the partnership deed:

1. Sam’s guarantee to the firm that the firm would earn a profit of at least ₹ 1,35,000. Any shortfall in these profits would be personally met by him.
2. Profits to be shared in the ratio of 2:2:1.

You are required to pass the necessary journal entries to rectify the error in accounting.

Answer 1

Journal Entry
Date	Particulars	L.F.	Debit	Credit
	Xen’s Capital A/c    ...Dr.		40,000	-
	Sam’s Capital A/c    ...Dr.		40,000	-
	Tim’s Capital A/c    ...Dr.		40,000	-
	To Profit & Loss Adjustment A/c		-	1,20,000
	(Being profit wrongly distributed cancelled)
	Sam’s Capital A/c    ...Dr.		15,000	-
	To Profit & Loss Adjustment A/c		-	15,000
	(Being guarantee to the firm fulfilled)
	Profit & Loss Adjustment A/c    ...Dr.		1,35,000	-
	To Xen’s Capital A/c		-	54,000
	To Sam’s Capital A/c		-	54,000
	To Tim’s Capital A/c		-	27,000
	(Being correct profit distributed)