Agarwal, Samuel and Khan are partners in a firm. On 1st April, 2022 their fixed capital stood at 2,50,000,1,25,000 and - 1,25,000 respectively. As…

CA Foundation · Accounting · RTP · May 2025
Agarwal, Samuel and Khan are partners in a firm. On 1st April, 2022 their fixed capital stood at 2,50,000,1,25,000 and - 1,25,000 respectively. As per the provision of partnership deed: (1) Khan was entitled for a salary of 25,000 p.a. (2) All the partners were entitled to interest on capital at 5% p.a. (3) Profits and losses were to be shared in the ratio of Capitals of the partners. Net Profit for the year ended 31st March, 2023 of 1,65,000 and 31st March, 2024 of 2,25,000 was divided equally without providing for the above adjustments. You are required to pass an adjustment journal entry to rectify the above errors.

Suggested Answer and Working Notes:

Particulars A B C Total Profit of firm I. Amount already credited: Share of profit (in the ratio of1:1:1) (2022-23, 2023-24) 1,30,000 1,30,000 1,30,000 3,90,000 Amount which should have been credited: Khan’s Salary (2022-23, 2023-24) 50,000 50,000 Interest on Capital (2022-23, 2023-24) 25,000 12,500 12,500 50,000 Share of Profit 1,45,000 72,500 72,500 2,90,000 1,70,000 85,000 1,35,000 Net effect (I -II) (40, 000) 45,000 (5, 000) - The necessary journal entry will be: Particulars Debit (₹) Credit (₹) Samuel’s Current A/c 45,000 To Agarwal’s Current A/c 40,000 To Khan’s Current A/c 5,000 (Salary to Khan’s, Interest on capital charged and profit shared among partners in the ratio of capital)

Topics: Treatment of Goodwill in Partnership Accounts

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