Page 40 - DEBKVOL-1

2.12 Double Entry Book Keeping—CBSE XII
Illustration 6.
A, B and C were partners in a firm. On 1st April, 2008 their fixed capitals stood at ` 50,000;
` 25,000 and ` 25,000 respectively.
As per the provisions of the Partnership Deed:
(i) B was entitled for a salary of ` 5,000 p.a.
(ii) All the partners were entitled to interest on capital @ 5% p.a.
(iii) Profits were to be shared in the ratio of capitals.
The net profit for the year ended 31st March, 2009 of ` 33,000 and 31st March, 2010 of ` 45,000,
was divided equally without providing for the above terms.
Pass an adjustment Journal entry to rectify the above error. (AI 2011 C)
Solution: ADJUSTMENT JOURNAL ENTRY
Date Particulars L.F. Dr. (`) Cr. (`)
2010
March 31 C’s Current A/c ...Dr. 9,000
To A’s Current A/c 8,000
To B’s Current A/c 1,000
(Required adjustment for correcting wrong distribution of profits)
Working Note:
STATEMENT SHOWING ADJUSTMENT TO BE MADE
Particulars A (`) B (`) C (`) Total
(i) Amount already credited as Share of Profit, now reversed:
31st March, 2009 11,000 11,000 11,000 33,000
31st March, 2010 15,000 15,000 15,000 45,000
(Dr..) 26,000 26,000 26,000 78,000
(ii) Amount which should have been credited:
Salary: 31st March, 2009 ... 5,000 ... 5,000
31st March, 2010 ... 5,000 ... 5,000
Interest on Capital: 31st March, 2009 2,500 1,250 1,250 5,000
31st March, 2010 2,500 1,250 1,250 5,000
Share of Profit*: 31st March, 2009 11,500 5,750 5,750 23,000
31st March, 2010 17,500 8,750 8,750 35,000
(Cr.) 34,000 27,000 17,000 78,000
(iii) Net Effect [(i) – (ii)] 8,000 Cr. 1,000 Cr. 9,000 Dr. ...
*Calculation of Share of Profit (31st March, 2009):
Adjusted Profits = ` 33,000 – ` 5,000 (Salary) – ` 5,000 (Interest on Capital) = ` 23,000
A’s Share = ` 23,000 × 2/4 = ` 11,500
B’s Share = ` 23,000 × 1/4 = ` 5,750
C’s Share = ` 23,000 × 1/4 = ` 5,750
Calculation of Share of Profit (31st March, 2010):
Adjusted Profits = ` 45,000 – ` 5,000 (Salary) – ` 5,000 (Interest on Capital) = ` 35,000
A’s Share = ` 35,000 × 2/4 = ` 17,500
B’s Share = ` 35,000 × 1/4 = ` 8,750
C’s Share = ` 35,000 × 1/4 = ` 8,750.