Question

A, B and C were partners. Their capital were Rs 30,000, Rs 20,000 and Rs 10,000 respectively. According to the partnership deed, they were entitled to an interest on capital at 5%. p.a. In addition, B was also entitled to draw a salary of Rs 500 per month. C was entitled to a commission of 5% on the profit after charging the interest on capital but before charging the salary payable to B. The net profit for the year was Rs 30,000 distributed in the ratio of their capitals without providing for any of the above adjustment. The profits were to be shared in the ratio of 2 : 2 : 1. Pass the required adjustment entry and show the working.

Answer 1

It is assumed that the given amount of capital is thought to be closing balance of the capital and therefore includes the profit already distributed at the end of the year. In this case, the alternative solution will be as under:

$\begin{array}{cccc}\text{Adjustment of Capitals}& \text{A (Rs)}& \text{B (Rs)}& \text{C (Rs)}\\ \text{Capital at the end of the year}& 30,000& 20,000& 10,000\\ \text{Less : Profit distributed (3 : 2 : 1)}& 15,000& 10,000& 5,000\\ \text{Capital at the beginning of the year}& 15,000& 10,000& 5,000\\ \text{Interest on Capital}@5\%& 750& 500& 250\end{array}$

STATEMENT SHOWING ADJUSTMENT TO BE MADE
$\begin{array}{ccccc}\text{Particulars}& \text{A (Rs)}& \text{B (Rs)}& \text{C (Rs)}& \text{Total (Rs)}\\ \text{Profit already credited (3 : 2 : 1) (Dr.)}& 15,000& 10,000& 5,000& 30,000\\ \text{Interest on Capital to be credited (Cr.)}& 750& 500& 250& 1,500\\ & 14,250& 9,500& 4,750& 28,500\\ \text{Commission to C to be credited}@5\%of& & & & \\ \text{Rs.}28,500\text{(Cr.)}& \underset{–}{}& \underset{–}{}& 1,425& 1,425\\ & 14,250& 9,500& 3,325& 27,075\\ \text{Salary to B to be credited (Cr.)}& \underset{–}{}& 6,000& \underset{–}{}& 6,000\\ & 14,250& 3,500& 3,325& 21,075\\ \text{Remaining profit to be credited (2 : 2 : 1) (Cr.)}& 8,430& 8,430& 4,215& 21,075\\ & 5,820& 4,930& 890& \underset{–}{}\\ & \text{(Dr.)}& \text{(Cr.)}& \text{(Cr.)}& \end{array}$

ADJUSTMENT ENTRY
$\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{L.F.}& \text{Debit}& \text{Credit}\\ & & & & \text{(Rs)}& \text{(Rs)}\\ & \text{A's Capital A/c}& \text{Dr}& & 5,820& \\ & \text{To B's Capital A/c}& & & & 4,930\\ & \text{To C's Capital A/c}& & & & 890\\ & \text{(Being adjustment entry passed)}& & & & \end{array}$