Question

A b c are partners in a firm sharing profits and losses in the ratio 2:3:4 there fixed capitals are 50000 ,75000,100000 after accounts are closed for the year it was noticed that interest at 8% pa was not credited to partners capital account show the necessary journal entry

Answer 1

now we now that interest on capital is taken before distribution of profit

this doesn't change total capital but brings change in internal capital

now as profit is not given we assume that their interest on capital is equal to their profits

now the total firm interest on capital is (225000)x8%=18000

this 18000 thousand is intrest on capital treated as profit

the old entry is 18000 treated as profit and added to partners Capital in Profit sharing ratio

i.e the

a got 4000

b got 6000

c got 8000

as profit added to Capital without adjusting intrest on capitals

now we assume that 18000 as the profit that forgot to distribute

now we take intrest

A should get (4000 intrest) which remains same as profit is 4000

B should get 6000 intrest remains same as profit

C also get 8000 remains same

now as the amounts are same the is no need of capital adjusting entry

therefore entry is

profit and loss adjustment a/c. dr18000. -

to intrest on capital -. 18000