Question

Yamini, Divyanshi and Rohini are partners sharing profits in the ratio of 3 : 2 : 1. Rohini is given guarantee that her share of profit in a year would be at least ₹ 1,20,000. Deficiency, if any, would be borne by Yamini and Divyanshi in the ratio of 5 : 4. Other terms of partnership agreement are: Divyanshi and Rohini to get salary of ₹ 15,000 p.m. and ₹ 20,000 per quarter respectively. Yamini to get commission of 2% on sales. Net profit earned by the firm of ₹ 8,00,000 was distributed in the ratio of 2 : 1 : 1 without taking into consideration the above provisions. Sales for the year amounted to ₹ 45,00,000.

You are required to pass a single adjustment entry to rectify the error (show workings clearly).

Answer 1

Adjustment Journal Entry
Date	Particulars	L.F	Debit (₹)	Credit (₹)
2024
Mar 31	Yamini’s Capital A/c   ...Dr.		1,10,000
	To Divyanshi’s Capital A/c			1,10,000
	(Being the adjustment entry passed to rectify errors in profit distribution, partner salaries, commission, and profit guarantee)

Working note:

1. Calculation of Correct Appropriations and Profits

• Yamini's Commission: 2% on Sales of ₹ 45,00,000 = ₹ 90,000
• Divyanshi's Salary: ₹ 15,000 × 12 months = ₹ 1,800,000
• Rohini's Salary: ₹ 20,000 × 4 quarters = ₹ 80,000
• Total Appropriations: ₹ 90,000 + ₹ 1,80,000 + ₹ 80,000 = ₹ 3,50,000

2. Distribution of Correct Divisible Profit

Divisible profit = Net profit − Total appropriations

Divisible profit = 8,00,000 − 3,50,000 = 4,50,000

The ₹ 4,50,000 divisible profit is initially shared in the ratio of 3 : 2 : 1:

Yamini's Share: `4,50,000 xx 3/6 = 2,25,000`

Divyanshi's Share: `4,50,000 xx 2/6 = 1,50,000`

Rohini's Share: `4,50,000 xx 1/6 = 75,000`

3. Adjustment for Rohini's Minimum Guaranteed Profit

• Rohini's Guaranteed Share: ₹ 1,20,000
• Deficiency in Rohini's Profit: 1,20,000 − 75,000 = 45,000
  This deficiency is borne by Yamini and Divyanshi in the ratio of 5 : 4:
• Borne by Yamini: `45,000 xx 5/9 = 25,000`
• Borne by Divyanshi: `45,000 xx 4/9 = 20,000`

4. Final adjusted profit shares:

Yamini: 2,25,000 − 25,000 - 2,00,000

Divyanshi: 1,50,000 − 20,000 = 1,30,000

Rohini: 75,000 + 45,000 = 1,20,000