P and Q are partners sharing profits and losses in the ratio of 2:1 with capitals ₹1,00,000 and ₹80,000 respectively. The interest on capital has been provided to them @ 8% instead of 10%. In the rectifying adjustment entry, Q will be:
Answers
Given:
- P and Q are partners in a firm, sharing profits and losses in the ratio 2:1.
- Their capitals are Rs 1,00,000 and Rs 80,000 respectively.
- Interest on capital is to be charged at 10% p.a. but was charged at 8% p.a. instead.
Objective: To pass the rectifying entry.
Answer:
Calculation of interest on capital [wrong amount - 8%]:
Interest on capital = Capital × (Rate ÷ 100)
For P:
- Interest on capital = Rs 1,00,000 × (8 ÷ 100) = Rs 8,000
For Q:
- Interest on capital = Rs 80,000 × (8 ÷ 100) = Rs 6,400
The interests on capitals are recorded on the debit side of the adjustment table if they are wrongly charged.
The firm's total will then be Rs 8,000 + Rs 6,400 = Rs 14,400 [Cr.]
Calculation of interest on capital [right amount - 10%]:
Interest on capital = Capital × (Rate ÷ 100)
For P:
- Interest on capital = Rs 1,00,000 × (10 ÷ 100) = Rs 10,000
For Q:
- Interest on capital = Rs 80,000 × (10 ÷ 100) = Rs 8,000
The right interests on capitals will be recorded on the credit side of the adjustment table.
The firm's total will then be Rs 10,000 + Rs 8,000 = Rs 18,000 [Dr.]
Calculation of profit/loss:
Observe the firm's balance. If the balancing figure appears on the debit side, it is profit. Else, loss.
Debit = Rs 18,000
Credit = Rs 14,400
Balancing figure = Rs 18,000 - Rs 14,400 = Rs 3,600 [Cr.]
Calculation of loss distribution:
Since they share their profits and losses in the ratio 2:1, the loss will be distributed accordingly.
For P:
- Loss share = Rs 3,600 × 2/3 = Rs 2,400
For Q:
- Loss share = Rs 3,600 × 1/3 = Rs 1,200
Balance each partner's column and pass the rectifying entry accordingly.
Rectifying entry:
P's capital A/c ... Dr - Rs 400
- To Q's capital A/c - Rs 400
Therefore, Q will be credited by Rs 400.
The Adjustment Table has been attached below.
