A, B and C were partners. Their capitals were A- Rs. 30,000; B - Rs. 20,000 and C- Rs. 10,000 respectively. According to the Partnership Deed, they were entitled to an interest on capital @ 5% p.a. In additio B was also entitled to draw a salary of Rs.500 per month. C was entitled to a commission of 5% on profits after charging the interest on capital, but before charging the salary payable to B. The net profit for the year were Rs. 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

Calculation of Interest on capital
A = 300005% = 1500
B= 200005% = 1000
C= 100005% = 500
Salary to B = 50012=6000
Calculation of C's commission = 30000-3000 = 27000*5/100= 1350
Profits to be distributed= 30000-3000-6000-1350 = 19,650

The adjustment entry to be passed is as follows:-
A's Capital A/c Dr. 3675
To B's capital A/c 2895
To C's capital A/c 780
(Being adjustment entry passed)

Table Showing Adjustment To be Made

A B C
Interest on capital 1500 1000 500
Salary 6000
Commission 1350
Profits to be distributed( 19650) 9825 5895 3930
Total 11325 12895 5780
Less: profits wrongly allocated (15000) (10000) (5000)
Adjustments (3675) 2895 780

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Interest on capital	1500	1000	500
Salary		6000
Commission			1350
Profits to be distributed( 19650)	9825	5895	3930
Total	11325	12895	5780
Less: profits wrongly allocated	(15000)	(10000)	(5000)
Adjustments	(3675)	2895	780