Question

A, B and C were partners in a firm. On 1-4-2023 their capitals stood at ₹ 5,00,000, ₹ 2,50,000 and ₹ 2,50,000, respectively. As per the provisions of the partnership deed:

1. C was entitled for a salary of ₹ 10,000 p.m.
2. Partners were entitled to interest on capital at 5% p.a.
3. Profits were to be shared in the ratios of capitals.

The net profit for the year ended 31.3.2024 of ₹ 3,30,000 was divided equally without providing for the above terms.

Pass an adjustment entry to rectify the above error.

Answer 1

Particulars	A	B	C	Total
Salary to C (Cr.)	-	-	1,20,000	1,20,000
Interest on Capital (Cr.)	25,000	12,500	12,500	50,000
Profit remaining after allowing salary and interest on capital will be 3,30,000 – 1,70,000 = 1,60,000. It will be divided in their capital ratio 2 : 1 : 1.	80,000	40,000	40,000	1,20,000
Net amount which should have been received (Cr.)	1,05,000	52,500	1,72,500	3,30,000
Less: Profit already distributed equally (Dr.)	1,10,000	1,10,000	1,10,000
	5,000  (Dr.)	57,500 (Dr.)	62,500 (Cr.)

 

Journal Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2024
March 31	A’s Capital A/c   ...Dr.		5,000	-
	B’s Capital A/c   ...Dr.		57,500	-
	To C’s Capital A/c		-	62,500
	(Adjustment for salary, interest on capital, and wrong distribution of profit.)