Question

The Capitals of A, B and C as on 31st March, 2018 amounted to ₹ 90,000, ₹ 3,30,000 and ₹ 6,60,000 respectively. The profits amounting ₹ 1,80,000 for the year 2017-18 were distributed in the ratio of 4 : 1 : 1 after allowing interest on Capital @ 10% p.a. During the year, each partner withdrew ₹ 3,60,000. The Partnership Deed was silent as to profit-sharing ratio but provided for interest on capital @ 12%.
Pass the necessary adjustment entry showing the working clearly.

Answer 1

Solution:

                                                     Journal  

Particulars                                                      L.F.     Debit Rs.    Credit Rs.

A's Capital A/c                                    Dr.                 66,000

To B's Capital A/c                                                                         30,000

To C's Capital a/c                                                                         36,000

(Being Adjustment of profit made)  

Working Note :  

1. Calculation of Opening Capital  

Particulars                                                           A Rs.         B Rs.          C Rs.

1. Closing Capital                                          90,000     3,30,000    6,60,000

2. Add : Drawings                                         3,60,000   3,60,000    3,60,000      

                                                                      4,50,000  6,90,000   10,20,000

3. Less: Profit already credited (4:1:1)           (1,20,000)  (30,000)   (30,000)

4. Opening Capital with interest on capital   3,30,000   6,60,000  9,90,000 Less: Interest on Capital (4. x 10/110)              (30,000)    (60,000)   (90,000)

Opening Capital                                              3,00,000   6,00,000  9,00,000  

2. Calculation of Interest on Capital  

Interest on A's Capital = 3,00,000 x $\frac{10}{100}$ = 30,000

Interest on B's Capital = 6,00,000 x $\frac{10}{100}$ = 60,000

Interest on C's Capital =9,00,000 x $\frac{10}{100}$ = 90,000  

3. Statement showing adjustment  

Particulars                                          A Rs.       B Rs.     C Rs.       Total Rs.

Interest on Capital 10%                  30,000    60,000    90,000    1,80,000

Profits to be distributed                 1,20,000  30,000   30,000    1,80,000

Less: Interest on Capital 12%         (36,000)  (72,000)  (1,08,000) (216,000)

Less: Share profit ratio(1:1:1)            (48,000)  (48,000)  (48,000)   (1,44,000)

                                                         66,000     30,000    36,000

Net Effect                                             Dr.             Cr.            Cr.             NIL