Question

A, B and C are partners sharing profits in the ratio of 2 : 2 : 1. Their fixed capitals were ₹ 4,00,000, ₹ 2,50,000 and ₹ 1,00,000, respectively. Net profit for the year ending 31st March, 2022, amounted to ₹ 2,20,000 which was distributed without providing for the following:

1. Salary to B ₹ 5,000 p.m. and to C ₹ 10,000 per quarter.
2. Interest on capital @ 6% p.a.
3. Commission to Manager @ 10% on net profit after charging such commission.

Pass the necessary rectifying entry.

Answer 1

Table showing adjustments
Particulars	A	B	C	Total
Interest on Capital (Cr.)	24,000	15,000	6,000	45,000
Salary (Cr.)	-	60,000	40,000	1,00,000
Share of Remaining Profit  (Cr.)	22,000	22,000	11,000
Total Amount Payable (Cr.)	46,000	97,000	57,000	2,00,000
Amount Already Credited (Dr.)	88,000	88,000	44,000	2,20,000
Net Effect (Adjustment)	(Dr) 42,000	(Cr.) 9,000	(Cr.) 13,000
Adjustment for Manager’s Commission (charge)				(Cr.) 20,000

 

Rectifying Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2022
March 31	A’s Current A/c   ...Dr.		42,000	-
	To B’s Current A/c		-	9,000
	To C’s Current A/c		-	13,000
	To Manager’s Commission Outstanding A/c		-	20,000
	(Adjustment for omission)

Working Notes:

Calculation of manager’s commission = `10/110 xx 2,20,000`

= 20,000

Manager’s commission ₹ 20,000 is treated as a charge against profit, so it is deducted before calculating the share of profit.

Net profit = ₹ 2,20,000 – 20,000

= ₹ 2,00,000 available for interest, salary, and shares.