Question

A B and C are partners sharing profit in the ratio 1 :1:1 their fixed capitals where rupees 20000 rupees 15000 and rupees 10000 respectively for the year ended 31st December 2018 interest on capital was credited to them at 10% per annum instead of 9% per annum record necessary adjustment entry class 12 ​

Answer 1

Given data:

• A, B and C are partners sharing profits/losses in the ratio 1:1:1.
• Their fixed capitals were Rs 20,000, Rs 15,000 and Rs 10,000.
• Interest on capital was charged at 10% p.a. instead of 9% p.a.

Objective: To rectify the error and pa‎ss the necessary journal entry.

Answer:

Calculation of interest on capital [wrong amount]:

Interest on capital = (Capital × Rate)/100

For A:

• Interest on capital = (Rs 20,000 × 10)/100 = Rs 2,000

For B:

• Interest on capital = (Rs 15,000 × 10)/100 = Rs 1,500

For C:

• Interest on capital = (Rs 10,000 × 10)/100 = Rs 1,000

Calculation of interest on capital [right amount]:

Interest on capital = (Capital × Rate)/100

For A:

• Interest on capital = (Rs 20,000 × 9)/100 = Rs 1,800

For B:

• Interest on capital = (Rs 15,000 × 9)/100 = Rs 1,350

For C:

• Interest on capital = (Rs 10,000 × 9)/100 = Rs 900

Calculation of profit:

To calculate the profit/loss, observe which side of the firm has a higher amount and subtract the one with the lesser amount from it. If the resultant value is on the debit side, it is profit. Else, loss.

Cr = Rs 4,500

Dr = Rs 4,050

Since the credit side is more, the resultant value of their difference will appear on the debit side, i.e., profit.

Profit = Rs 4,500 - Rs 4,050 = Rs 450

Calculation of profit shares:

Since profits are shared in the ratio 1:1:1, they must be distributed accordingly.

For A:

• Profit share = Rs 450 × 1/3 = Rs 150

For B:

• Profit share = Rs 450 × 1/3 = Rs 150

For C:

• Profit share = Rs 450 × 1/3 = Rs 150

Rectifying entry:

A's current a/c ... Dr - Rs 50

• To C's current a/c - Rs 50