Question

The Capital Accounts of A and B stood at ₹ 4,00,000 and ₹ 3,00,000 respectively after necessary adjustments in respect of the drawings and the net profit for the year ended 31st March, 2018. It was subsequently discovered that 5% p.a. interest on capital and also drawings were not taken into account in arriving at the distributable profit. The drawings of the partners had been: A–₹ 12,000 drawn at the end of each quarter and B–₹ 18,000 drawn at the end of each half year. The profit for the year as adjusted amounted to ₹ 2,00,000. The partners share profits in the ratio of 3 : 2. You are required to pass Journal entries and show adjusted Capital Accounts of the partners.

Answer 1

Solution:

                                         Journal

Particulars                                         L.F.   Debit Rs.   Credit Rs.

Pand:L Adjustment A/c                Dr.          29.200

        To A's Capital A/c                                                  16,400

        To B's Capital A/c                                                    12,800

(Being Interest on capital omitted, now provided)

A's Capital A/c                              Dr.            900

B's Capital A/c                              Dr.             450

        To Pand L Adjustment A/c                                        1,350

(Being Interest on drawings omitted, now charged)

A's Capital A/c                               Dr.             16,710

B's Capital A/c                                Dr.             11,140

To PandL Adjustment A/c (29,200 - 1,350)                        27,850

(Being Loss on adjustment is distributed between the partner)  

                                 

                                  Partner's Current Account  

Dr.                                                                                                          Cr.

Particulars              A Rs.      B Rs.             Particulars       A Rs.     B Rs.

To B's Capital A/c  1,210                   By Balance b/d  4,00,000  3,00,000

To Balance c/d    3,98,790   3,01,210 By A's Capital A/c             1,210

                             4,00,000   3,01,210                        4,00,000   3,01,210

Working Notes :  

1. Calculation of Capital as on April 01 2016 (Opening Capital  

Particulars                                                   A Rs.      B Rs.      Total Rs.

Capital as on March 31,2017 (Closing)  4,00,000  3,00,000  7,00,000

          Add : Drawings                            48,000     36,000     84,000

          Less : Profit                                 (1,20,000)   (80.000)   (2.00.000)

Capital as on April 01,2016 (Opening)   3,28,000   2,56,000   5,84,000  

2.Calculation of Interest on Capital  

Interest on A's Capital =3,28,000 x $\frac{5}{100}$ = 16,400

Interest on B's Capital =2,56,000 x $\frac{5}{100}$ = 12, 800

3. Calculation of Interest on Drawings

Interest on A's Drawings = 48, 000 x $\frac{5}{100}$ x $\frac{4.5}{12}$ = 900

Interest on B's Drawings = 36, 000 x $\frac{5}{100}$ x $\frac{3}{12}$ =450  

In Case only Adjustment Entry is to be passed  

                                            Journal  

Particulars                                                    L.F.   Debit Rs.   Credit Rs.

A's Capital A/c                                                         1,210

To 13's Capital A/c                                                                       1,210

(Being amount of interest on Capital and interest on drawings adjusted)

Working Notes :  

                            Statement Showing Adjustment  

Particulars                                               A Rs.    B Rs.     Total Rs.

Interest on Capital (to be credited)     16,400   12,800    29,200

Less : Interest on Drawings                  (900)     (450)      (1,350)

Right distribution of 27,850                 15,500   12,350    27,850

Less : Wrong Distribution of 27,850(3:2) (16,710)  (11,140)   (27,850)

Net Effect                                               (1,210)      1,210           NIL  

Answer 2

Answer:

Partners' Capital accounts: A--- ₹ 3,98,790; B--- ₹ 3,01,210; Capitals on 1/04/2018: (opening capital): A--- ₹ 3,28,000; B--- ₹ 2,56,000; interest on capital: A--- ₹ 16,400; B--- ₹12,800; interest on drawings: A--- ₹ 900; B--- ₹ 450.

Explanation:

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