Question

On 31st March, 2014, the balances in the Capital Accounts of Saroj, Mahinder and Umar after making adjustments for profits and drawings, etc., were ₹ 80,000, ₹ 60,000, ₹ 40,000 respectively. Subsequently, it was discovered that the interest on capital and drawings has been omitted.
(a) The profit for the year ended 31st March, 2014 was ₹ 80,000.
(b) During the year Saroj and Mahinder each withdrew a sum of ₹ 24,000 in equal instalments in the end of each month and Umar withdrew ₹ 36,000.
(c) The interest on drawings was to be charged @ 5% p.a. and interest on capital was to be allowed @ 10% p.a.
(d) The profit-sharing ratio among partners was 4 : 3 : 1.
Showing your workings clearly, pass the necessary rectifying entry.

Answer 1

Solution:

                                                  Journal  

Date            Particulars                             L.F.       Debit Rs.      Credit Rs.                

             Saroj's Capital A/c                Dr.                2,350

         Mahinder's Capital A/c             Dr.                1,300

          To limits Capital A/c 3.650

         (Being Profits wrongly distributed

          without providing interest on

       capital and drawings, now adjusted)  

Working Note  

1. Calculating of Opening Capital  

Particulars                   Saroj Rs.           Mahinder Rs.         Umar Rs.

Closing Capital            80,000                 60,000              40,000

Add : Drawings           24,000                  24,000              24,000

Less : Profits (80,000 (40,000)               (30,000)             (10,000)

in 4:3:1)  

Opening Capital         64,000                54,000               66,000  

2. Calculation of Interest on Capital  

Interest on Saroj's Capital = 64,000 x-$\frac{10}{100}$  = 6,400  

Interest on Mahinder's Capital =54,000 x $\frac{10}{100}$ = 5,400  

Interest on Umar's Capital = 66,000 x $\frac{10}{100}$ = 6,600  

3. Calculation of Share of Profits to be credited

Profit available for distribution among partners

               = Rs.80,000 - Rs.18,400 + Rs.2,000 = Rs.63,600

Saroj's Profit Share = 63, 600 x $\frac{4}{8}$ = 31, 800

Mahinder's Profit Share =63,600 x $\frac{4}{8}$ = 23, 850

U mar's Profit Share = 63,600 x $\frac{1}{8}$ = 7,950  

4: Statement showing adjustment  

                          Statement Showing Adjustment  

Particulars                 Saroj Rs.    Mahinder Rs.   Umar Rs.    Total

Interest on Capital     6,400           5,400            6,600      18,400

Interest on Drawings   (550)          (550)             (900)        (2,000)

Profits to be distributed 31,800     23,850         7,950        63,600

Total (A)                        37,650        28,700         13,650      80,000

Less : Profits wrongly  (40.000)    (30.000)      (10.000)     (80,000)

distributed

                                   ((2.350)       (1.300)            3.650

Net Effect (A - B)           Dr                Dr                  Cr                NIL

Answer 2

Explanation:

saroj capital account Dr 2350

Mahinder capital account Dr 1300

to Umar capital account 3650