Asha , Nisha and Disha are partners sharing profits in the ratio of 3: 2: 1. Their fixed capital are 240000and 180000 and 120000. For the year 18 -19 interest was credited to them @ 6%p.a. instead of 5% p.a. Record adjustment entry.
Answers
Given data:
- Asha, Nisha and Disha are partners sharing profits in the ratio 3:2:1.
- Their fixed capitals are Rs 2,40,000, Rs 1,80,000 and Rs 1,20,000.
- For the year ended 31st March, 2019, interest on capital was charged at 6% p.a. instead of 5% 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 Asha:
- Interest on capital = (Rs 2,40,000 × 6)/100 = Rs 14,400
For Nisha:
- Interest on capital = (Rs 1,80,000 × 6)/100 = Rs 10,800
For Disha:
- Interest on capital = (Rs 1,20,000 × 6)/100 = Rs 7,200
Calculation of interest on capital [right amount]:
Interest on capital = (Capital × Rate)/100
For Asha:
- Interest on capital = (Rs 2,40,000 × 5)/100 = Rs 12,000
For Nisha:
- Interest on capital = (Rs 1,80,000 × 5)/100 = Rs 9,000
For Disha:
- Interest on capital = (Rs 1,20,000 × 5)/100 = Rs 6,000
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 32,400
Dr = Rs 27,000
Since the credit side is more, the resultant value of their difference will appear on the debit side, i.e., profit.
Profit = Rs 32,400 - Rs 27,000 = Rs 5,400
Calculation of profit shares:
Since profits are shared in the ratio 3:2:1, they must be distributed accordingly.
For Asha:
- Profit share = Rs 5,400 × 3/6 = Rs 2,700
For Nisha:
- Profit share = Rs 5,400 × 2/6 = Rs 1,800
For Disha:
- Profit share = Rs 5,400 × 1/6 = Rs 900
Rectifying entry:
Disha's current a/c ... Dr - Rs 300
- To Asha's current a/c - Rs 300
