The firm of Harry, Porter and Ali, who have been sharing profits in the ratio of 2 : 2 : 1, have existed for same years. Ali wants that he should get equal share in the profits with Harry and Porter and he further wishes that the change in
the profit-sharing ratio should come into effect retrospectively were for the three years. Harry and Porter have agreement on this account. The profits for the last three years were:
Show adjustment of profits by means of a single adjustment Journal entry.
Answers
The adjustment Journal entry are calculated below:
Explanation:
Given,
The firm of Harry, Porter and Ali, who have been sharing profits in the ratio of 2 : 2 : 1
Given,
Profit for the year 2015-2016 is Rs. 2,20,000
Profit for the year 2016-2017 is Rs. 2,40,000
Profit for the year 2017-2018 is Rs. 2,90,000
Thus, the total profit is (220000+240000+290000) i.e., Rs. 7,50,000
Old ratio of the profit is 2 : 2 : 1
Thus, as per the old ratio it has been divided as follows
For Harry = Rs. 3,00,000
For Porter = Rs. 3,00,000
For Ali = Rs. 1,50,000
New profit ratio will be 1 : 1 : 1
Thus, each one get a profit of Rs. 2,50,000 each
Thus, the adjustment has been made.
As per the journal entry given below, an amount of Rs. 50000 has been debited from Harry and Porter each and has been credited to Ali's capital account.
