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Question
The fixed capital accounts of Shiv, Azeem and Angad, sharing profits and losses in the ratio of 2 : 2 : 1, stood at ₹ 4,00,000, ₹ 6,00,000 and ₹ 2,00,000 respectively.
The accounts for the year ended 31st March, 2022, were drawn up and closed and the Current Account balances of the partners were determined to be:
Shiv ₹ 35,000, Azeem ₹ 40,000 and Angad ₹ 25,000.
Subsequently, the following errors were discovered on 1st April, 2022:
- Interest on capital @ 10% per annum had been allowed to the partners, although there was no provision for it in the partnership deed.
- Salary of ₹ 16,000 per annum to Shiv and ₹ 20,000 per annum to Azeem was not allowed to them, despite a provision for salary in the partnership deed.
- Commission of ₹ 24,000 was not allowed to Angad, despite a provision for commission in the partnership deed.
You are required to prepare the adjusted Current Accounts of the partners on 1st April, 2022, to rectify the lapse in accounting.
Solution
| Dr. | Adjusted Current Accounts as on 1st April 2022 |
Cr. | |||||
| Particulars | Shiv(₹) | Azeem(₹) | Angad(₹) | Particulars | Shiv(₹) | Azeem(₹) | Angad(₹) |
| To Interest on Capital A/c | 40,000 | 60,000 | 20,000 | By Balance b/d | 35,000 | 40,000 | 25,000 |
| By Partner's Salary A/c | 16,000 | 20,000 | - | ||||
| By Partner's Commission A/c | - | - | 24,000 | ||||
| By Profit on readjustment | 24,000 | 24,000 | 12,000 | ||||
| 75,000 | 84,000 | 61,000 | 75,000 | 84,000 | 61,000 | ||
Working Note:
Profit on Readjustment = Sum of Interest on capitals debited − (Salary and Commission Credited)
= (40,000 + 60,000 + 20,000) − (16,000 + 20,000 + 24,000)
= 1,20,000 − 60,000
Profit on readjustment = ₹ 60,000 [credited to partners in their profit sharing ratio]
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