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On 31st March, 2014, balances in the Capital Accounts of Eleen, Monu and Ahmad after making adjustments for profits and drawings were Rs.1,60,000,Rs.1,20,000 and Rs.80,000 respectively. Subsequently, it was discovered that the interest on capital and drawings had been omitted.
(i) The profit for the year ended 31st March, 2014 was Rs.40,000.
(ii) During the year, Eleen and Monu each withdrew a total sum of Rs.24,000 in equal instalments in the beginning of each month and Ahmad withdrew a total sum of Rs.48,000 in equal instalments at the end of each month.
(iii) The interest on drawings was to be charged @ 5% p.a. and interest on capital was to be allowed @ 10% p.a.
(iv) The profit-sharing ratio among the partners was 2:1:1. Showing your working notes clearly, pass the necessary rectifying entry.
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Rectification entry is as follows :-
Eleen's capital A/c Dr. 3850
To Monu's capital A/c 2950
To Ahmad's capital A/c 900
(Being adjustment entry passed)
Calculation of Opening Capital Eleen Monu Ahmad
Closing capital 1,60,000 1,20,000 80,000
Add:Drawings 24,000 24,000 48,000
Less:Profits credited (20,000) (10,000) (10000)
Opening Capital 1,64,000 1,34,000 1,18,000
Interest on Capital @10% 16,400 13,400 11,800
Calculation of Interest on Drawings Eleen Monu Ahmad
Interest on Drawings (24,000*5%*6.5/12) (24,000*5%*6.5/12) (48,000*5%*5.5/12)
= 650 650 =1100
Table Showing Adjustments To Be Made
Particulars Eleen Monu Ahmad
Interest on capital 16,400 13,400 11,800
Interest on Drawings (650) (650) (1100)
Profit to be credited 400 200 200
Profit wrongly credited (20000) (10000) (10000)
Net Effect (3850) 2950 900
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toppr
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