Question 1
A and B are partners in a farm. A is entitled to a salary of ₹15,000 p.m and a commission of 10% of net profit before charging any commission. B is entitled to a commission of 10% of net profit after charging his commission. Net profit till 31st March 2018 was ₹4,40,000. Show the distribution of profit.
Solution:
| Dr. | Profit and Loss of Appropriate AccountTill 31st March, 2018 | Cr. | |
| Particulars | ₹ | Particulars | ₹ |
| To A’s Salary | 1,80,000 | By Profit & Loss A/c (Net Profit) | 4,40,000 |
| To A’s Commission(₹4,40,000 x 10/100) | 44,000 | ||
| To B’s Commission(₹4,40,000 x 10/110) | 40,000 | ||
| To Profit transferred to: | |||
| A’s Capital A/c 88,000B’s Capital A/c 88,000 | 1,76,000 | ||
| 4,40,000 | 4,40,000 | ||
Question 2
X, Y, and Z are partners sharing profits and losses in the ratio 3:2:1. After the final accounts have been prepared, it discovered that interest in drawings@5% p.a had not been taken into consideration. The drawings of the partners were: X ₹1,50,000, Y ₹1,26,000 , Z ₹1,20,000. Prepare a journal entry.
Solution:
Calculation of Interest on Drawings:
X: 5% on ₹1,50,000 for 6 months = ₹ 3,750
Y: 5% on ₹1,26,000 for 6 months = ₹ 3,150
Z: 5% on ₹1,20,000 for 6 months = ₹ 3,700
₹ 9,900
| Table Showing Adjustments | |||||
| X (₹) | Y (₹) | Z (₹) | Total | ||
| Interest on DrawingsDivision of ₹5,400 in 3:2:1 | Dr.Dr. | 2,5502,700 | 1,8501,850 | 1,000900 | 5,4005,400 |
| Difference | Cr.150 | Dr. 50 | DR.100 | ——– | |
Hence, the adjusting entry will be:
| Journal Entry | |||||
| Date | Particulars | L.F | Dr. ₹ | Cr. ₹ | |
| Y’s Capital A/cZ’s Capital A/c | Dr.Dr. | 50100 | |||
| To X’s Capital A.c(Adjustment in respect of interest on drawing omitted in previous year’s account) | 150 | ||||
Question 3
Akshara and Samiksha are partners. Business is carried from the property owned by Akshara on a monthly rent of ₹5,000. Akshara is entitled to a salary of ₹40,000 per quarter and Samiksha get a commission of 4% on net sales, which during the year was ₹5,00,000. Net profit till 31st March, 2018 before providing for rent was ₹6,00,000
Prepare a profit and loss appropriate account till 31st March 2018.
Solution:
| Dr. | Profit and Loss Appropriate AccountTill 31st March, 2018 | Cr. | |
| Particulars | ₹ | Particulars | ₹ |
| To Salary to AksharaTo commission to Samiksha | 1,60,0002,00,000 | By Profit & Loss A/c (Net Profit)( ₹6,00,00 – ₹60,000) | 5,40,000 |
| To Profit transferred to: | |||
| Akshara’s Capital A/c 90,000Samiksha’s Capital A/c 90,000 | 1,80,000 | ||
| 5,40,000 | 5,40,000 | ||
*Rent paid to a partner is a charge against profits. It will be debited to the Profit & Loss Account.
Question 4
Ravi and Mohan were partners in a firm sharing profits in the ratio of 7:5. Their respective fixed capitals were Ravi ₹10,00,000 and Mohan ₹7,00,000. The partnership deed provided for the following:
- Interest on Capital @ 12% pa.
- Ravi’s salary ₹6,000 per month and Mohan’s salary ₹60,000 per year.
The profit till March 31-3-2019 was ₹5,04,000 which was distributed equally, without providing for the above. Record an adjustment entry.
Solution:
| Statement of Adjustments | ||||
| Ravi (₹) | Mohan (₹) | Total (₹) | ||
| Interest on Capitals | Cr. | 1,20,000 | 84,000 | 2,04,000 |
| Salary | Cr. | 72,000 | 60,000 | 1,32,000 |
| Profit left* after authorizing interest on capital and salary will be ₹5,04,000 – ₹2,04,000 – ₹1,32,000 = ₹1,68,000. The profit sharing ration will be divided into, i.e, 7:5 | 98,000 | 70,000 | 1,68,000 | |
| Net amount that should have been received | Cr. | 2,90,000 | 2,14,000 | 5,04,000 |
| Less: Profit already distributed equally | Dr. | 2,52,000 | 2,52,000 | 5,04,000 |
| Net Effect | (Cr.) 38,000 | (DR.) 38,000 | ———– | |
*Remaining profit will have to be calculated when profit has already been distributed in wrong profit sharing ratio.