Question

Simi, Manu, and Beena are partners in a firm sharing profits and losses in the ratio of 2:2:1. The balances of their fixed capital accounts on 1st April, 2020, were: Simi ₹ 1,00,000, Manu ₹ 1,00,000 and Beena ₹ 80,000 After the accounts for the year ended 31st March, 2021, were prepared, it was discovered that interest on capital @ 10% per annum had been credited to the partners’ current accounts even though it was not provided in the partnership deed.The error in Simi’s capital account / current account will be rectified by​

Answer 1

Given:

• Simi, Manu and Beena are partners in a firm, sharing profits and losses in the ratio 2:2:1.
• Their capitals are Rs 1,00,000, Rs 1,00,000 and Rs 80,000 respectively.
• Interest on capitals at 10% p.a. was charged, but there was nothing mentioned about interests on capitals in the partnership deed.

Objective: To rectify the error.

Answer:

Calculation of interests on capitals [wrongly charged]:

Interest on capital = (Capital × Rate) ÷ 100

For Simi:

• Interest on capital = (Rs 1,00,000 × 10) ÷ 100 = Rs 10,000

For Manu:

• Interest on capital = (Rs 1,00,000 × 10) ÷ 100 = Rs 10,000

For Beena:

• Interest on capital = (Rs 80,000 × 10) ÷ 100 = Rs 8,000

The wrongly charged interests on capitals will be recorded on the debit side of the adjustment table.

When there is nothing mentioned in the partnership deed regarding interests on capitals/when the partnership deed is silent, no interest is to be charged on the partners' capitals.

Calculation of profit/loss:

To determine profit/loss, observe the Firm's balance. If the balancing figure appears on the debit side, it is profit. Else, loss.

Credit side = Rs 28,000

Debit side = NIL

The balancing figure = Rs 28,000 [Dr.]

Calculation of profit distribution:

Since they share their profits and losses in the ratio 2:2:1, it must be distributed accordingly.

For Simi:

• Profit share = Rs 28,000 × 2/5 = Rs 11,200

For Manu:

• Profit share = Rs 28,000 × 2/5 = Rs 11,200

For Beena:

• Profit share = Rs 28,000 × 1/5 = Rs 5,600

Rectifying entry:

Beena's current A/c ... Dr - Rs 2,400

• To Simi's current A/c - Rs 1,200
• To Manu's current A/c - Rs 1,200

Therefore, Simi's current account will be rectified by crediting it with Rs 1,200.

The Adjustment Table has been attached below.