T.S. Grewal Class 12 Chapter 1 Q.65 - Accounting for Partnership Firm Fundamentals

Question 65

A, B and C were partners. Their fixed capitals were ₹60,000, ₹40,000 and ₹20,000 respectively. Their profit-sharing ratio was 2 : 2 : 1. According to the Partnership Deed, they were entitled to interest on capital @ 5% p.a. In addition, B was also entitled to draw a salary of ₹1,500 per month. C was entitled to a commission of 5% on the profits after charging interest on capital but before charging the salary payable to B. The net profit for the year, ₹80,000, was distributed in the ratio of their capitals without providing for any of the above adjustments. Showing your workings clearly, pass the necessary adjustment entry. (CBSE 2019)

Solution

JOURNAL

Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
	A’s Current A/c    Dr.		16,080
	To B’s Current A/c			14,253
	To C’s Current A/c			1,827
	(Omission of interest, salary and commission, now adjusted)

Statement Showing Adjustment

Particulars	A	B	C	Total
Interest on Capital @ 5%	3,000	2,000	1,000	6,000
Salary to B	–	18,000	–	18,000
Commission to C	–	–	3,700	3,700
Share of correct profit (2 : 2 : 1 of 52,300)	20,920	20,920	10,460	52,300
Right Share	23,920	40,920	15,160	80,000
Less: Wrongly distributed (capital ratio 3 : 2 : 1)	(40,000)	(26,667)	(13,333)	(80,000)
Net Effect	–16,080 (Dr.)	+14,253 (Cr.)	+1,827 (Cr.)	Nil

Working Note: C’s commission = 5% × (₹80,000 – ₹6,000) = ₹3,700. Correct divisible profit = ₹80,000 – ₹6,000 – ₹3,700 – ₹18,000 = ₹52,300.