Page 46 - DEBKVOL-1

2.18 Double Entry Book Keeping—CBSE XII
Solution:
ADJUSTMENT JOURNAL ENTRY
Date Particulars L.F. Dr. Cr.
` `
X’s Capital A/c ...Dr. 60,000
Y’s Capital A/c ...Dr. 60,000
To Z’s Capital A/c 90,000
To Y’s Loan A/c 30,000
(Profit distributed in wrong ratio, now rectified after providing
for interest on loan)

STATEMENT SHOWING THE ADJUSTMENT TO BE MADE
Particulars X’s Capital A/c Y’s Capital A/c Z’s Capital A/c Firm
Dr. (`) Cr. (`) Dr. (`) Cr. (`) Dr. (`) Cr. (`) Dr. (`) Cr. (`)
Amount already credited
as share of profit in the
ratio of 2 : 2 : 1 3,00,000 ... 3,00,000 ... 1,50,000 ... ... 7,50,000
Amount which should have
been credited as share
of profit (` 7,50,000 – ` 30,000)
in the ratio of 1 : 1 : 1 ... 2,40,000 ... 2,40,000 ... 2,40,000 7,20,000 ...
3,00,000 2,40,000 3,00,000 2,40,000 1,50,000 2,40,000 7,20,000 7,50,000
Net Effect 60,000 Dr. ... 60,000 Dr. ... ... 90,000 Cr. ... 30,000*

*Interest on loan ` 30,000 (i.e., ` 5,00,000 × 6/100) is a charge against profit. It is an
expense for the firm and hence, is debited to Profit and Loss Account. On the other
hand, it is a gain for partner as a lender and hence is credited to his Loan Account and
not to his Capital Account. Being a charge against profits, it should be transferred
to the debit of Profit and Loss Account and not to the debit of Profit and
Loss Appropriation Account.

Illustration 13 (Guarantee by the Firm as well as by Partners).
A, B, C and D are partners sharing profits and losses in the ratio of 4 : 3 : 2 : 1. Their capitals as
at 1st April, 2017 were ` 3,00,000; ` 2,50,000; ` 1,50,000 and ` 1,00,000 respectively.

D’s share of profits excluding interest on capital has been guaranteed by the firm to be not less
than ` 2,50,000. C’s share of profits including interest on capital and salary guaranteed by A is
not less than ` 2,60,000.
The profit for the year ended 31st March, 2018 were ` 9,00,000 before interest on capital @ 10%
and salary to C @ ` 10,000 per month.

Prepare Profit and Loss Appropriation Account and distribute the profit.