Question

Prem, Param and Priya were partners in a firm. Their fixed capitals were
Prem 52,00,000; Param 3,00,000 and Priya 5,00,000. They were sharing profits
in the ratio of their capitals. It was decided that the new profit sharing ratio will be
2.1: 2 and its effect will be introduced retrospectively for the last four years. The
profits of the last four years were 12,00,000; 33,50,000; 34,75,000 and 5,25,000
respectively.
Showing your calculations clearly, pass a necessary adjustment entry to give
effect to the new agreement between Prem, Param and Priya.
​

Answer 1

Answer:

Prem A/c Dr. 39,90,000

To Param A/c 12,82,500

To Priya A/c 27,07,500

(Being adjustment entry passed)

Explanation:

Prem :

Earlier Credited (wrong Profit distributed in capital ratio) 74,10,000

To be Credited (correct profit distributed in 2:1:2) 34,20,000

since Prem is highly credited with the amount 39,90,000 (74,10,000 - 34,20,000).

So we Debit Prem by 34,90,000.

Param :

Earlier Credited (wrong Profit distributed in capital ratio) 4,27,500

To be Credited (correct profit distributed in 2:1:2) 17,10,000

since Param is less credited with the amount 12,82,500 (17,10,000-4,27,500).

So we Credit Param by 12,82,500.

Priya :

Earlier Credited (wrong Profit distributed in capital ratio) 7,12,500

To be Credited (correct profit distributed in 2:1:2) 34,20,000

since Priya is less credited with the amount 34,20,000 (34,20,000 - 7,12,500).

So we Debit Priya by 27,07,500.

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