Question

Malti, Paro and Arti are partners in a firm having fixed captial of 80,000, 40,000 and 50,000 respectively sharing profits as 7:6:4. The rate of interest on capital was agreed at 10% per annum but was wrongly credited to them as 12% per annum Give the necessary Adjustment entry to adjust the balances of Partners' Capital Accounts.​

Answer 1

Given data:

• Malti, Paro and Arti are partners in a firm sharing profits and losses in the ratio 7:6:4.
• Their capitals are Rs 80,000, Rs 40,000 and Rs 50,000 respectively.
• Interest on capital is to be charged at 10% p.a., but 12% p.a. was charged instead.

Objective: To rectify the error and pas‎s the rectifying entry.

Answer:

Calculation of interest on capitals [wrong amount]:

Interest on capital = (Capital × Rate) ÷ 100

Rate = 12%

For Malti:

• Interest on capital = (Rs 80,000 × 12) ÷ 100 = Rs 9,600

For Paro:

• Interest on capital = (Rs 40,000 × 12) ÷ 100 = Rs 4,800

For Arti:

• Interest on capital = (Rs 50,000 × 12) ÷ 100 = Rs 6,000

Interests on capitals will be recorded on the debit side of the adjustment table if they were wrongly charged.

Calculation of interest on capitals [right amount]:

Interest on capital = (Capital × Rate) ÷ 100

Rate = 10%

For Malti:

• Interest on capital = (Rs 80,000 × 10) ÷ 100 = Rs 8,000

For Paro:

• Interest on capital = (Rs 40,000 × 10) ÷ 100 = Rs 4,000

For Arti:

• Interest on capital = (Rs 50,000 × 10) ÷ 100 = Rs 5,000

The correct interests on capitals will be recorded on the credit side of the adjustment table.

Calculation of profit/loss:

To determine profit/loss, observe the firm's balances. If the balancing figure appears on the debit side, it is profit. Else, loss.

Credit side = Rs 20,400

Debit side = Rs 17,000

Balancing figure = Rs 20,400 - 17,000 = Rs 3,400 [Dr.]

Calculation of profit distribution:

Since they share profits and losses in the ratio 7:6:4, it must be distributed accordingly.

For Malti:

• Profit share = Rs 3,400 × 7/17 = Rs 1,400

For Paro:

• Profit share = Rs 3,400 × 6/17 = Rs 1,200

For Arti:

• Profit share = Rs 3,400 × 4/17 = Rs 800

Rectifying entry:

Malti's Current A/c ... Dr - Rs 200

Arti's Current A/c ... Dr - Rs 200

• To Paro's Current A/c - Rs 400

The Adjustment Table has been attached below.