A, B and C were partners. Their capitals were A–₹ 30,000; B–₹ 20,000 and C–₹ 10,000 respectively. According to the Partnership Deed, they were entitled to an interest on capital @ 5% p.a. In addition, B was also entitled to draw a salary of ₹ 500 per month. C was entitled to a commission of 5% on the profits after charging the interest on capital, but before charging the salary payable to B. The net profit for the year were ₹ 30,000 distributed in the ratio of capitals without providing for any of the above adjustments. The profits were to be shared in the ratio of 5 : 3 : 2.
Pass necessary adjustment entry showing the workings clearly.

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Solution

Journal

Particulars

L.F.

Debit Amount

Rs

Credit Amount

Rs

A’s Current A/c

Dr.

3,675

To B’s Current A/c

2,895

To C’s Current A/c

780

(Adjustment of profit made)

Working Notes:
WN 1 Calculation of Interest on Capital

WN 2 Salary to B = Rs 500 × 12 = Rs 6,000

WN 3 Calculation of Commission to C
Commission to C = 5% on profit after interest on capital but before salary

Profit after Interest on Capital but before Salary = 30,000 − 3,000 = Rs 27,000

WN 4 Calculation of Profit Share of each Partner
Profit available for Distribution = 30,000 − 3,000 − 6,000 − 1,350 = Rs 19,650

WN 5

Statement Showing Adjustment

Particulars

A

B

C

Total

Interest on Capital (to be credited)

1,500

1,000

500

3,000

Salary/ Commission (to be credited)

-

6,000

1,350

7,350

Profit (to be credited)

9,825

5,895

3,930

19,650

Right Distribution

11,325

12,895

5,780

30,000

Wrong Distribution of Rs 30,000 (3:2:1)

(15,000)

(10,000)

(5,000)

(30,000)

Net Effect

(3,675)

2,895

780

NIL

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Journal
Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
A’s Current A/c	Dr.		3,675
To B’s Current A/c				2,895
To C’s Current A/c				780
(Adjustment of profit made)

Statement Showing Adjustment
Particulars	A	B	C	Total
Interest on Capital (to be credited)	1,500	1,000	500	3,000
Salary/ Commission (to be credited)	-	6,000	1,350	7,350
Profit (to be credited)	9,825	5,895	3,930	19,650
Right Distribution	11,325	12,895	5,780	30,000
Wrong Distribution of Rs 30,000 (3:2:1)	(15,000)	(10,000)	(5,000)	(30,000)
Net Effect	(3,675)	2,895	780	NIL