Question

Q-5. Alex John and Sam are partners in a firm. Their capital accounts on 1 st April
2018
stood at Rs. 1,00,000, Rs.80,000 and Rs. 60,000 respectively.
Each partner withdrew Rs. 5,000 during the financial year 2018-19.
As per the provisions of their partnership deed:
(a) John was entitled to a salary of Rs. 1,000 per month
(b) Interest on Capital was to be allowed @ 10% p.a.
(c) Interest on drawings was to be charged @ 4% p.a
(d) Profits and losses were to be shared in the ratio of their capitals.
The net profit of Rs.75,000 for the year ended 31 st March 2019, was divided equally
amongst the partners without providing for the terms of the deed.
You are required to pass a single Adjusting Entry to rectify the Error.​

Answer 1

Alex John and Sam are partners in a firm. Their capital accounts on 1 st April

2018

stood at Rs. 1,00,000, Rs.80,000 and Rs. 60,000 respectively.

Each partner withdrew Rs. 5,000 during the financial year 2018-19.

As per the provisions of their partnership deed:

(a) John was entitled to a salary of Rs. 1,000 per month

(b) Interest on Capital was to be allowed @ 10% p.a.

(c) Interest on drawings was to be charged @ 4% p.a

(d) Profits and losses were to be shared in the ratio of their capitals.

The net profit of Rs.75,000 for the year ended 31 st March 2019, was divided equally

amongst the partners without providing for the terms of the deed.

You are required to pass a single Adjusting Entry to rectify the Error

Explanation:

Corrected Net Profit = Net Profit before adjustment - Salary - Interest on Capital + Interest on Drawings = 75,000 - 12,000 - 24,000 + 300  = 39,300 Corrected Net Profit will be distributed in the Capital ratio

1,00,000 : 80,000 : 60,000 or

5 : 4 : 3