T.S. Grewal Class 12 Chapter 1 Q.91 - Accounting for Partnership Firm Fundamentals

Question 91

Xen, Sam and Tim are partners in a firm. For the year ended 31st March, 2025, the profit of the firm, ₹1,20,000, was distributed equally among them, without giving effect to the following terms of the Partnership Deed: (i) Sam’s guarantee to the firm that the firm would earn a profit of at least ₹1,35,000; any shortfall would be met by him. (ii) Profits to be shared in the ratio of 2 : 2 : 1. Pass the necessary Journal entries to rectify the error.

Solution

JOURNAL

Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
2025 Mar 31	Xen’s Capital A/c    Dr.		40,000
	Sam’s Capital A/c    Dr.		40,000
	Tim’s Capital A/c    Dr.		40,000
	To Profit & Loss Adjustment A/c			1,20,000
	(Profit wrongly distributed equally, now reversed)
2025 Mar 31	Sam’s Capital A/c    Dr.		15,000
	To Profit & Loss Adjustment A/c			15,000
	(Shortfall in guaranteed profit met by Sam)
2025 Mar 31	Profit & Loss Adjustment A/c    Dr.		1,35,000
	To Xen’s Capital A/c			54,000
	To Sam’s Capital A/c			54,000
	To Tim’s Capital A/c			27,000
	(Corrected profit ₹1,35,000 distributed in 2 : 2 : 1)

Working Note: The firm earned ₹1,20,000 against the guaranteed ₹1,35,000, so Sam contributes the shortfall of ₹15,000, making ₹1,35,000 available for distribution in 2 : 2 : 1 (Xen ₹54,000, Sam ₹54,000, Tim ₹27,000).