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Alex, John and Sam are partners in a firm. Their capital accounts on 1st April. 2011. stood at Rs 1.00.000, Rs 80.000 and Rs 60.000 respectively. 

Each partner withdrew Rs 5.000 during the financial year 2011-12.

As per the provisions of their partnership deed : 

(a) John was entitled to a salary of Rs 1.000 per month. 

(b) Interest on capital was to be allowed @ 10% per annum. 

(c) Interest on drawings was to be charged @ 4% per annum. 

(d) Profits and losses were to be shared in the ratio of their capitals. The net profit of Rs 75,000 for the year ended 31st March. 2012 was divided equally amongst the partners without providing for the terms of the deed.

You are required to pass a Single Adjusting Journal Entry to rectify the error. (Show the workings clearly)

1 Answer

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Working Notes: 1.

1. Corrected Net Profit = Net Profit before adjustment - Salary - Interest on Capital + Interest on Drawings

= 75,000 - 12,000 - 24,000 + 300  = 39,300

Corrected Net Profit is distributed in the Capital ratio

1,00,000 : 80,000 : 60,000

or

5 : 4 : 3

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