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Question -

The firm of Harry, Porter and Ali, who have been sharing profits in the ratio of 2: 2: 1, have existed for same years. Ali wants that he should get equal share in the profits with Harry and Porter and he further wishes that the change in the profit sharing ratio should come into effect retrospectively were for the last three year. Harry and Porter have agreement on this account. The profits for the last three years were:

 

₹

2014-15

22,000

2015-16

24,000

2016-17

29,000
Show adjustment of profits by means of a single adjustment journal entry.



Answer -

Distributionof Profit

 

Old Ratio (2:2:1)

Harry

Porter

Ali

 

Total

Year

 

 

 

 

 

2014 – 15

(8,800)

(8,800)

(4,400)

=

(22,000)

2015 – 16

(9,600)

(9,600)

(4,800)

=

(24,000)

2016 – 17

(11,600)

(11,600)

(5,800)

=

(29,000)

 

 

 

 

=

 

Total Profit of 3 years in old ratio

(30,000)

(30,000)

(15,000)

=

(75,000)

Distribution of 3 years profit in new Ratio (1:1:1)

25,000

25,000

25,000

=

75,000

Adjusted Profit

(5,000)

(5,000)

10,000

 

NIL

 

Journal(Adjusting entry)

 

Date

 

Particulars

 

L.F

Debit Amount ₹

Credit Amount ₹

 

 

 

 

 

 

 

Harry’s Capital A/c

Dr.

 

5,000

 

 

Porter’s Capital A/c

Dr.

 

5,000

 

 

To Ali’s Capital A/c

 

 

 

10,000

 

(Profit adjusted due to change in profit sharing ratio)

 

 

 

 

 

 

 

 

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