Question

The firm of Harry, Porter and Ali, who have been sharing profits in the ratio of 2:2:1, as they are partners from the beginning now Ali wants that he should get equal share in the profits with Harry and Porter and he further wishes that the change in the profit sharing ratio should come into effect retrospectively were for the last three year. Harry and Porter have agreement on this acount.

The profits for the last three years were

(Rs)

2003-04 22,000

2004-05 24,000

2005-06 29,000

Show adjustment of profits by means of a single adjustment journal entry.

Answer 1

Total profit of last three years = 22,000 + 24,000 + 29,000 = Rs 75,000

$\begin{array}{ccccc}\text{Total Profit Distributed among}& & \text{Harry}& \text{Porter}& \text{Ali}\\ \text{In old ratio 2:2:1}& & 30,000& 30,000& 15,000\\ & \text{A}& 30,000& 30,000& 15,000\\ \text{Distribution according to new ratio 1:1:1}& & 25,000& 25,000& 25,000\\ & \text{B}& 25,000& 25,000& 25,000\\ \text{Difference (B-A)}& & (5,000)& (5,000)& 10,000\\ & & \text{Dr}& \text{Cr}& \text{Cr}\end{array}$

Note Negative is Debit

Journal Entry

$\begin{array}{ccccccc}\text{Date}& \text{Particulars}& & \text{LF}& \text{Amt. (Dr)}& & \text{Amt. (Cr)}\\ & \text{Harry's Capital A/c}& \text{Dr}& & 5,000& & \\ & \text{Porter's Capital A/c}& \text{Dr}& & 5,000& & \\ & \text{To Ali's Capital A/c}& & & & & 10,000\\ & \text{(Being profit adjusted among all partners)}& & & & & \end{array}$