T.S. Grewal Class 12 Chapter 1 Q.87 - Accounting for Partnership Firm Fundamentals

Question 87

The partners of a firm, Alia, Bhanu and Chand, distributed the profits for the year ended 31st March, 2017 of ₹80,000 in the ratio of 3 : 3 : 2 without providing for the following adjustments: (a) Alia and Chand were entitled to a salary of ₹1,500 each per month; (b) Bhanu was entitled to a commission of ₹4,000; (c) Bhanu and Chand had guaranteed a minimum profit of ₹35,000 p.a. to Alia, any deficiency to be borne equally by Bhanu and Chand. Pass the necessary Journal entry for the above adjustments. Show workings clearly. (CBSE Sample Paper 2018)

Solution

JOURNAL

Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
2017 Mar 31	Bhanu’s Capital A/c    Dr.		21,000
	Chand’s Capital A/c    Dr.		2,000
	To Alia’s Capital A/c			23,000
	(Adjustment for omitted salary, commission and guarantee)

Statement Showing Adjustment

Particulars	Alia	Bhanu	Chand	Total
Salary (₹1,500 × 12)	18,000	–	18,000	36,000
Commission	–	4,000	–	4,000
Share of correct profit (after guarantee)	35,000	5,000	–	40,000
Right Share	53,000	9,000	18,000	80,000
Less: Wrongly distributed (3 : 3 : 2)	(30,000)	(30,000)	(20,000)	(80,000)
Net Effect	+23,000 (Cr.)	–21,000 (Dr.)	–2,000 (Dr.)	Nil

Working Note: Divisible profit = ₹80,000 – ₹36,000 – ₹4,000 = ₹40,000 (3 : 3 : 2 → Alia ₹15,000, Bhanu ₹15,000, Chand ₹10,000). Alia’s deficiency = ₹35,000 – ₹15,000 = ₹20,000, borne equally by Bhanu and Chand (₹10,000 each).