Question

Piya and Shreya are partners in a firm. Their capital accounts as on 1st April, 2023, were ₹ 5,00,000 and ₹ 3,00,000, respectively.

As per provisions of the Deed:

1. Piya was entitled to a remuneration of ₹ 60,000 per year and Shreya a remuneration of ₹ 6,000 per month.
2. Interest on capitals was to be provided @ 6% p.a.
3. Profit will be divided equally among the partners.

Ignoring the above terms, the net profit of ₹ 4,00,000 for the year ended 31st March, 2024, was distributed between the partners in the ratio of their capitals.

Pass the journal entries to rectify the above errors.

Hints:

1. Entry will be passed for withdrawing the profit of ₹ 4,00,000 distributed in the wrong ratio by crediting the Profit and Loss Adjustment A/c.
2. Separate entries will be passed for allowing remuneration and interest on capital by debiting the Profit and Loss Adjustment A/c.
3. Entry will be passed for distributing the corrected net profit of ₹ 2,20,000 equally.

Answer 1

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2024
March 31	Piya’s Capital A/c   ...Dr.		2,50,000	-
	Shreya’s Capital A/c   ...Dr.		1,50,000	-
	To Profit and Loss Adjustment A/c		-	4,00,000
	(Being previously distributed profit reversed through Profit and Loss Adjustment A/c.)
March 31	Profit and Loss Adjustment A/c   ...Dr.		1,32,000	-
	To Piya’s Capital A/c		-	60,000
	To Shreya’s Capital A/c		-	72,000
	(Being partner’s remuneration credited to their capital accounts.)
March 31	Profit and Loss Adjustment A/c   ...Dr.		48,000	-
	To Piya’s Capital A/c		-	30,000
	To Shreya’s Capital A/c		-	18,000
	(Being interest on capitals @ 6% p.a. credited to capital accounts.)
March 31	Profit and Loss Adjustment A/c   ...Dr.		2,20,000	-
	To Piya’s Capital A/c		-	1,10,000
	To Shreya’s Capital A/c		-	1,10,000
	(Being balance profit distributed equally between partners.)