4. P and Q were partners in a firm sharing profits and losses equally. Their fixed
capitals were 2,00,000 and 3,00,000 respectively. The partnership deed
provided for interest on capital @ 12% p.a. For the year ended 31st March,
2016, the profits of the firm were distributed without providing interest on
capital. Pass necessary adjustment entry to rectify the error.
Answers
Answer:
the final answer is
Explanation:
p'Ps capital acc 24000 Q 's capita acc 36000 Dr To interest on capita acc 60000 cr
Answer:
The journal entry that need to pass for rectifying the error is as follows:
Explanation:
For Interest on Capital, it is now adjusted:
P's Current A/c..............Dr 6,000
To Q's Current A/c.......Cr 6,000
Working Note:
Interest on Capital to P = 2,00,000 × 12%
= 24,000
Profits distributed to the extent of interest amount of P = 30,000 (5,00,000 × 12% / 2)
For,
Net Effect = Interest on Capital - Profits distributed to the extent of interest amount
= 24,000 - 30,000
= (6,000)
Interest on Capital to Q = 3,00,000 × 12%
= 36,000
Profits distributed to the extent of interest amount of Q = 30,000
For,
Net Effect (profit sharing)= Interest on Capital - Profits distributed to the extent of interest amount
= 36,000 - 30,000
= 6,000