Question

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

Answer 1

Answer:

200000-100000=1000000

Explanation:

Answer 2

• Interest on Capital

Azad =  40,000 ×5 /100

 = Rs 2,000

Benny =  80,000 ×  5 /100

= Rs 4,000

• Adjustment of profit -

Interest on capital                                                 2000 4000 = 6000

Less: Wrong distribution of Profit Rs 6,000 (1: 1) 3000 3000 = 6000

Adjusted Profit                                                        1000 1000 = Nil

• Adjusting journal entries -

Azad's Current  A/c  Dr.  1,000

To Benny's Current A/c  1,000

(Adjustment of profit made)