Question

P and Q were partners in a firm sharing profits and losses equally. Their fixed capitals were ₹ 2,00,000 and ₹ 3,00,000 respectively. The Partnership Deed provided for interest on capital @ 12% per annum. For the year ended 31st March, 2016, the profits of the firm were distributed without providing interest on capital. Pass necessary adjustment entry to rectify the error.

Answer 1

The necessary adjustment entry to rectify the error are calculated below:

Explanation:

Given,

P and Q were partners in a firm sharing profits and losses equally. Their fixed capitals were ₹ 2,00,000 and ₹ 3,00,000 respectively.

The Partnership Deed provided for interest on capital @ 12% per annum.

Calculation of Interest:

Interest on Capital @ 12%

P's interest

$=200000\times \frac{12}{100}=24000$

Q's interest

$=300000\times \frac {12}{100}=36000$

Therefore, the total interest will be of Rs. 60000

Profit Sharing:

Also given,

The profits of the firm were distributed without providing interest on capital

Thus, the profit which is wrongly distributed between P and Q is of Rs. 30000 each which is Rs. 6000 more of P's interest and Rs. 6000 less of Q's interest.

Therefore, an amount of Rs. 6000 has been credited to Q's capital account from the P's Current account. This has been the adjustment for the omission of interest on the capital.

Answer 2

P's Current A/C Dr-₹6000

To Q's Current A/C - ₹6000