N and S were partners in a firm with fixed capitals of ₹ 5,00,000 and ₹ 4,00,000 respectively. It
was discovered that interest on capital @ 6% p.a. was credited to the partners for the two years ending 31st March, 2018 and 31 st March, 2019 whereas there was no such
provision in the partnership deed. Their profit sharing ratio during the last two years was : 2017 - 18 4 : 5
2018 - 19 5 : 1
Showing your workings clearly, pass the necessary adjustment entry to rectify the error.
Answers
Answer:
tl41
Explanation:
3yy
2tb
. in TO mg.be
Capital account can be regarded as one of the primary components of the balance of payments of a nation.
The partners' capital accounts will be adjusted, and their current account balances will be correct.
To rectify the error of crediting interest on capital to partners, the following adjustment entry needs to be passed:
Interest on Capital Adjustment A/c Debit
To N's Capital A/c
To S's Capital A/c
The interest on capital adjustment account is a nominal account and is debited because the interest on capital was wrongly credited in the past years. The interest amount credited to the partners will be debited to this account.
N's Capital account and S's Capital account are personal accounts and will be credited because they are entitled to receive their share of profit in the firm. The credit amount will be equal to the interest amount credited to them in the past two years.
To calculate the interest amount, we can use the formula:
Interest on Capital = Capital * Rate of Interest * Time
For N, the interest on capital for two years (2017-18 and 2018-19) will be:
Interest on Capital = ₹5,00,000 * 6% * 2
= ₹60,000
For S, the interest on capital for two years (2017-18 and 2018-19) will be:
Interest on Capital = ₹4,00,000 * 6% * 2
= ₹48,000
Therefore, the adjustment entry will be:
Interest on Capital Adjustment A/c ₹1,08,000
To N's Capital A/c ₹60,000
To S's Capital A/c ₹48,000
After passing this entry, the partners' capital accounts will be adjusted, and their current account balances will be correct.
for such more question on adjustment enrty
https://brainly.in/question/52843826
#SPJ3