Ram Lakhan and Bharat are partners in a firm. On 1st April 2022 their fixed capital stood at 1,50,000,75,000 and - 75,000 respectively. As per the…

CA Foundation · Accounting · MTP · June 2024
Ram Lakhan and Bharat are partners in a firm. On 1st April 2022 their fixed capital stood at 1,50,000,75,000 and - 75,000 respectively. As per the provision of partnership deed: (1) Bharat was entitled for a salary of 15,000 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 99,000 and 31st March, 2024 of 1,35,000 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 Ram Lakhan Bharat Total Profit of firm I. Amount already credited: Share of profit (in the ratio of 1:1:1) (2022-23, 2023-24) 78,000 78,000 78,000 2,34,000 II. Amount which should have been credited: C’s Salary (2022-23, 2023-24) 15,000 Interest on Capital (2022-23, 2023-24) 7,500 7,500 30,000 Share of Profit 87,000 43,500 43,500 1,74,000 1,02,000 51,000 81,000 Net effect (I-II) (24,000) 27,000 (3,000) - The necessary journal entry will be: Particulars Debit (₹) Credit (₹) Lakhan’s Current A/c 27,000 To Ram’s Current A/c 24,000 To Bharat’s Current A/c 3,000 (Salary to Bharat, Interest on capital charged and profit shared among partners in the ratio of capital)

Topics: Introduction to Partnership Accounts

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