Question

Kumar and Raja were partners in a firm sharing profits in the ratio of 7 : 3. Their fixed capitals were: Kumar ₹ 9,00,000 and Raja ₹ 4,00,000. The partnership deed provided for the following, but the profit for the year was distributed without providing for:

1. Interest on capital @ 9% per annum.
2. Kumar’s salary ₹ 50,000 per year and Raja’s salary ₹ 3,000 per month.

The profit for the year ended 31.3.2024 was ₹ 2,78,000.

Pass the adjustment entry.

Answer 1

Table showing adjustments
Particulars	Kumar	Raja	Total
Interest on Capital (Cr.)	81,000	81,000	1,17,000
Salary (Cr.)	50,000	36,000	86,000
Total Amount Payable (Cr.)	1,31,000	72,000	2,03,000
Division of firm’s loss of 2,03,000 in 7 : 3 (Dr.)	1,42,100	60,900	2,03,000
Net Effect	(Dr.) 11,100	(Cr.) 11,100

 

Adjustment Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2024
April 10	Kumar’s Current A/c   ...Dr.		11,100	-
	To Raja’s Current A/c		-	11,100
	(Being an adjustment of the omission of interest on capital and salary.)

The net profit for the year 2,78,000 will be ignored because it has been distributed using the correct profit-sharing ratio.