Question

65 A, B and C were partners. Their fixed capitals were Rs 60,000, Rs 40,000 and Rs 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 Rs 1,500 per month. C was entitled to a commission of 5% on the profits after charging the interest on capital, but before charging the salary payable to B. The net profits for the year, Rs 80,000, were distributed in the ratio of their capitals without providing for any of the above adjustments. Showing your workings clearly, pass the necessary adjustment entry.
Sol- Calculation of Interest on capital
A = 60000 x 5% = 3000
B= 40000 x 5% = 2000
C= 2 0000 x 5% = 1000
Salary to B = 1500 x 12=18000
Calculation of C's commission = 80,000 -3000-2000-1000= 74000 x 5/100 = 3700
Profits to be distributed= = 80,000 -3000-2000-1000-18000-3700= 52300

Statement Showing Adjustment
Particulars A
Rs. B
Rs. C
Rs. Total
Interest on Capital (to be credited)
Salary 1500 x 12
Commission
Profits to be distributed( 52300 x2:2:1)

Total
Less: profits wrongly allocated 80000 x (3 :2 :1) 3000


20920
2000
18000

20920
1000

3700
10460
6000
18000
3700
52300

23920 40920 15160 80000
40000 26666 13333 80000
Net Effect (16080) 14254 1827 NIL

The adjustment entry to be passed is as follows:-
A's Current A/c Dr. 16080
To B's current A/c 14253
To C's current A/c 1827
(Being adjustment entry passed)

Answer 1

Answer:

Hope this is helpful

Explanation:

Answer 2

Answer:
Adjustment Entry will be passed, which is:

A's Current A/c......     Dr.          ₹16080
    To B's Current A/c                                   ₹14253
    To C's Current A/c                                   ₹1827

Explanation:

Solution:

Calculation of interest on capital
A= 60000×5%= ₹3000
B= 40000×5%= ₹2000
C= 20000×5%= ₹1000

Now,
Salary to B= 1500 per month
= 1500×12= ₹18000

Calculation of C's commission=

5% of (Profit- Interest on capital of partners)= 5% of (80000-6000)
= $\frac{5}{100}$×$74000$
= ₹3700
∴ Profits to be distributed= Profits- Interest on capital- Salary- Commission
= 80000- 6000- 18000- 3700
= ₹52300

However, the profits were wrongly distributed among the partners in their capital ratio, i.e., 3:2:1
Profits wrongly distributed=
A= 40000 (Dr)
B= 26667 (Dr)
C= 13333 (Dr)

Now, the partners have been provided with interest, commission and salary
∴ Their balances become:
A= 40000 (Dr)+ 3000 (Cr)= ₹37000 (Dr)
B= 26667 (Dr)+ 18000 (Cr)= ₹8667 (Dr)
C= 13333 (Dr)+ 3700 (Cr)= ₹9633 (Dr)

Now, the actual profits will be distributed among the partners in their profit-sharing ratio, i.e., 2:2:1

Distributable profits= ₹52300
Share of profits:
A= $\frac{2}{5}$×$52300$= ₹20920 (Cr)
B= $\frac{2}{5}$×$52300$=  ₹20920 (Cr)
C= $\frac{1}{5}$×$52300$= ₹10460 (Cr)

Adjusted amounts=

A= 37000-20920= ₹16080 (Dr)
B= 8667-20920= ₹14253 (Cr)
C= 9633-10460= ₹1827 (Cr)

Adjustment Entry:

A's Current A/c......     Dr.          ₹16080
    To B's Current A/c                                   ₹14253
    To C's Current A/c                                   ₹1827

#SPJ3