Page 48 - DEBKVOL-1

2.20 Double Entry Book Keeping—CBSE XII
Illustration 14 (Guarantee and Past Adjustment).
The partners of a firm distributed the profit for the year ended 31st March, 2018, ` 4,50,000 in
the ratio of 3 : 2 : 1 without providing for the following:
(i) Salary to X and Z of ` 7,500 p.a. each.
(ii) Commission to Y of ` 22,500.
(iii) Y and Z had guaranteed a minimum profit of ` 1,75,000 to X.
(iv) Profit was to be shared in the ratio of 3 : 3 : 2.
Pass necessary Journal entry for the above adjustment in the books of the firm.
Solution: JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
2018
March 31 X’s Capital A/c ...Dr. 42,500
To Y’s Capital A/c 15,000
To Z’s Capital A/c 27,500
(Required adjustment made to rectify the errors)

Working Notes:
1. ADJUSTMENT TABLE
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. (`)
Salaries to be paid to X and Z ... 7,500 ... ... ... 7,500 15,000 ...
Commission to be paid to Y ... ... ... 22,500 ... ... 22,500 ...
Profit to be shared (WN 2) ... 1,75,000 ... 1,42,500 ... 95,000 4,12,500 ...
Profit of ` 4,50,000 already
distributed in 3 : 2 : 1, now to
be debited 2,25,000 ... 1,50,000 ... 75,000 ... ... 4,50,000
Total 2,25,000 1,82,500 1,50,000 1,65,000 75,000 1,02,500 4,50,000 4,50,000
Net Effect (Dr./Cr.) 42,500 (Dr.) 15,000 (Cr.) 27,500 (Cr.) NIL

2. PROFIT AND LOSS APPROPRIATION ACCOUNT
Dr. for the year ended 31st March, 2018 Cr.
Particulars ` Particulars `
To Partner’s Salary: By Profit and Loss A/c 4,50,000
X 7,500 (Net Profit)
Z 7,500 15,000
To Y’s Commission A/c 22,500
To Profit transferred to:
X’s Capital A/c 1,75,000
Y’s Capital A/c 1,42,500
Z’s Capital A/c 95,000 4,12,500
4,50,000 4,50,000
3. Distribution of Profit: Profit of ` 4,12,500 (i.e., ` 4,50,000 – ` 15,000 – ` 22,500) will be distributed among
X, Y and Z in the ratio of 3 : 3 : 2. X’s share = ` 4,12,500 × 3/8 = ` 1,54,687. Y and Z had guaranteed minimum
profit of ` 1,75,000 to X. Guaranteed profit is higher than his actual profit. Therefore, out of ` 4,12,500, first
` 1,75,000 will be credited to X and balance of ` 2,37,500 will be distributed between Y and Z in ratio of
3 : 2. Y will get 3/5 of ` 2,37,500, i.e., ` 1,42,500 and Z will get 2/5 of ` 2,37,500, i.e., ` 95,000.
Final distribution will be X—` 1,75,000; Y—` 1,42,500 and Z—` 95,000.