Question

Alex, John, and Sam are partners in a firm. Their capital accounts on 1st April, 2011, stood at ₹ 1,00,000, ₹ 80,000 and ₹ 60,000, respectively.

Each partner withdrew ₹ 5,000 during the financial year 2011-12.

As per the provisions of their partnership deed:

1. John was entitled to a salary of ₹ 1,000 per month.
2. Interest on capital was to be allowed @ 10% per annum.
3. Interest on drawings was to be charged @ 4% per annum.
4. Profits and losses were to be shared in the ratio of their capitals.

The net profit of ₹ 75,000 for the year ended 31st March 2012 was divided equally amongst the partners without providing for the terms of the deed.

You are required to pass a Single Adjusting Journal Entry to rectify the error. (Show the working clearly.)

Answer 1

Statement of Adjustments
Particulars	Alex (₹)	John (₹)	Sam (₹)
1. Amount which should have been credited:
Salary	-	12,000	-
Interest on Capital	10,000	8,000	6,000
Profit for distribution (₹75,000 − 12,000 − 24,000 + 300 = ₹ 39,300) in 5 : 4 : 3	16,375	13,100	9,825
Cr.	26,375	33,100	15,825
2. Amount which should have been debited:
Interest on Drawings	100	100	100
Profit already distributed equally	25,000	25,000	25,000
Dr.	25,100	25,100	25,100
Net Effect	(Cr.) 1,275	(Cr.) 8,000	(Dr.) 9,275

 

Journal Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2012
April 1	Sam’s Capital A/c   ...Dr.		9,275	-
	To Alex’s Capital A/c		-	1,275
	To John’s Capital A/c		-	8,000
	(Being adjustment made for partner’s salary, interest on capital, interest on drawings and rectification of profit wrongly distributed.)