Question

A, B and C were partners in a firm. Their capitals were A ₹ 1,00,000, B ₹ 2,00,000 and C ₹ 3,00,000, respectively, on 1st April, 2023. According to the partnership deed, they were entitled to an interest on capital @ 5% p.a. In addition, A was also entitled to draw a salary of ₹ 5,000 per month. C was entitled to a commission of 5% on net profits. The net profits for the year ended 31st March, 2024, were ₹ 3,60,000, distributed in the ratio of their capitals without providing for any of the above adjustments. The profits were to be shared in the ratio 2 : 3 : 5. Pass the necessary adjustment entry showing the workings clearly.

Answer 1

Statement of Adjustment
Particulars	A	B	C	Total
Interest on Capital	5,000	10,000	15,000	30,000
Salary (5,000 × 12)	60,000	-	-	60,000
Commission: 5% on 3,60,000	-	-	18,000	18,000
Remaining Profit, i.e., 360,000 – 30,000 – 60,000 – 18,000 = 2,52,000 will be divided in their profit-sharing ratio 2 : 3 : 5	50,400	75,600	1,26,000	2,52,000
Net amount which should have been received (Cr.)	1,15,400	85,600	1,59,000	3,60,000
Less: Profit already distributed in 1 : 2 : 3 (capital ratio) (Dr.)	60,000	1,20,000	1,80,000	3,60,000
Net Effect	(Cr.) 55,400	(Dr.) 34,400	(Dr.) 21,000

 

Journal Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2024
March 31	B’s Capital A/c   ...Dr.		34,400	-
	C’s Capital A/c   ...Dr.		21,000	-
	To A’s Capital A/c		-	55,400
	(Adjustment for salary, interest on capital and wrong distribution of profit)