Question

The partners of a firm distributed the profits for the year ended 31st March, 2024, ₹ 1,50,000 in the ratio of 2 : 2 : 1 without providing for the following adjustments:

1. A and B were entitled to a salary of ₹ 1,500 per quarter.
2. C was entitled to a commission of ₹ 18,000.
3. A and C had guaranteed a minimum profit of ₹ 50,000 p.a. to B.
4. Profits were to be shared in the ratio of 3 : 3 : 2.

Pass the necessary journal entry for the above adjustments in the books of the firm.

Answer 1

Journal Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2024
April 1	A’s Capital A/c   ...Dr.		12,000	-
	B’s Capital A/c		4,000	-
	To C’s Capital A/c		-	16,000
	(Being adjustment made for omission in partners’ capital accounts.)

 

Particulars	A (₹)	B (₹)	C (₹)	Total (₹)
Salary (Cr.)	6,000	6,000	-	12,000
Commission (Cr.)	-	-	18,000	18,000
Profit guaranteed to B (Cr.)	-	50,000	-	50,000
The remaining profit, i.e., ₹ 1,50,000 – ₹ 12,000 – ₹ 18,000 – ₹ 50,000 = ₹ 70,000, will be divided between A and C in 3 : 2 (Cr.)	42,000	-	28,000	70,000
(Cr.)	48,000	56,000	46,000	1,50,000
Less: Profit already distributed (₹ 1,50,000 in 2 : 2 : 1) (Dr.)	60,000	60,000	30,000	1,50,000
	(Dr.) 12,000	(Dr.) 4,000	(Cr.) 16,000

Working Note:

Profit remaining after allowing for salary and commission will be:

= ₹ 1,50,000 – ₹ 12,000 – ₹ 18,000

= ₹ 1,20,000

B’s share = `1,20,000 xx 3/8`

= ₹ 45,000

Since it is less than the guaranteed amount of ₹ 50,000, he will be allowed ₹ 50,000.