Question

Azad and Benny are equal partners. Their capitals are ₹ 40,000 and ₹ 80,000 respectively. After the accounts for the year have been prepared, it is discovered that interest @ 5% p.a. as provided in the partnership agreement has not been credited to the Capital Accounts before distribution of profits. It is decided t make an adjustment entry in the beginning of the next year. Record the necessary journal entry.

Answer 1

The necessary journal entry are calculated below:

Explanation:

Given,

Azad and Benny's capitals are ₹ 40,000 and ₹ 80,000 respectively

The interest @ 5% p.a has not been credited to the Capital Accounts.

Calculation of Interests:

Azad's Interest

$=40000\times \frac{5}{100} = 2000$

Benny's capital

$=80000\times \frac{5}{100} = 4000$

Thus, their total interest is (2000+4000) i.e., Rs. 6000

Here, the profit has been wrongly distributed as Rs. 3000 each.

Calculation of Profit Sharing:

Azad = Rs. 2000 - Rs. 3000 = - Rs. 1000

Benny = Rs. 4000 - Rs. 3000 = Rs. 1000

Thus, an amount of Rs. 1000 has been credited to Benny's capital account from Azad's account.

Answer 2

See this solution and try it