Question

Dhruv and Ansh are partners in a firm sharing profits and losses: Dhruv 75% and Ansh 25%. Their Balance Sheet as at 31st March, 2021 is given below: Balance Sheet of Dhruv and Ansh As at 31st March, 2021 Liabilities Amount (₹) Amount (₹) Assets Amount (₹) Amount (₹) Sundry Creditors   49,000 Cash   62,000 Workmen Comp. Reserve   5,000 Sundry Debtors 18,500 17,000 Capital A/c:   50,000 Less: Prov. for Doubtful Debts (1,500) Dhruv 30,000 Land and Building   25,000 Ansh 20,000           1,04,000     1,04,000 On 1st April 2021, Kavi is admitted as a new partner on the following terms: Land and building is found to be valued at 25% above cost. It is decided to bring it to its cost. Bad debts amounting to ₹ 1,800 are to be written off. The remaining debtors are good. Creditors include an amount of ₹ 5,000 received as commission from Amar. The necessary adjustment is required to be made. The liability on the Workmen’s Compensation Reserve is determined at ₹ 3,000. Kavi is to pay ₹ 15,000 to the existing partners as a premium for Goodwill for 20% of the future profits of the firm. He is also to bring in ₹ 25,000 as capital.

Creditors include an amount of ₹ 5,000 received as commission from Amar. The necessary adjustment is required to be made.

Options

• Commission A/c will be credited with ₹ 5,000.

• Creditors A/c will be credited with ₹ 5,000.

• Amar’s A/c will be debited with ₹ 5,000.

• Creditors A/c will be debited with ₹ 5,000.

Answer 1

Creditors A/c will be debited with ₹ 5,000.

Explanation:

Creditors A/c will be Debited because the commission amount is not payable to Creditors. Therefore, to reduce the liability of Creditors, the Creditors A/c is debited.

Commission A/c will be Credited because this ₹5,000 is an Income for the firm, which was not properly recorded until now. To record income, the Commission A/c is credited.

Therefore, Creditors A/c will be debited with ₹ 5,000. This option is correct because it reduces the incorrectly inflated amount of Creditors.