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)
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