. X, Y and Z are partners in a firm. They have omitted interest on capital @ 10% p.a. for the year 31/3/2021. Capital balance were X Rs. 100000, Y Rs. 50000, Z Rs. 30000. What will be the adjustment entry?
Answers
Given data:
- X, Y and Z are partners in a firm.
- Interest on capital is to be charged at 10% p.a., but was omitted.
- Their capital balances are Rs 1,00,000, Rs 50,000 and Rs 30,000 respectively.
Objective: To rectify the error and pass the adjustment entry.
Answer:
Calculation of interest on capitals:
Interest on capital = (Capital × Rate) ÷ 100
For X:
- Interest on capital = (Rs 1,00,000 × 10) ÷ 100 = Rs 10,000
For Y:
- Interest on capital = (Rs 50,000 × 10) ÷ 100 = Rs 5,000
For Z:
- Interest on capital = (Rs 30,000 × 10) ÷ 100 = Rs 3,000
Interests on capitals will be recorded on the credit side of the adjustment table if they're omitted.
Calculation of profit/loss:
To determine profit/loss, observe the balancing figure of the firm. If the balancing figure appears on the debit side, it is profit. Else, loss.
The balancing figure = Rs 18,000 [Cr.]
Calculation of loss shares:
Since there is no profit/loss-sharing ratio mentioned, it is assumed that they're shared equally, i.e., in the ratio 1:1:1.
For X:
- Loss share = Rs 18,000 × 1/3 = Rs 6,000
For Y:
- Loss share = Rs 18,000 × 1/3 = Rs 6,000
For Z:
- Loss share = Rs 18,000 × 1/3 = Rs 6,000
Rectifying entry:
Y's current A/c ... Dr - Rs 1,000
Z's current A/c ... Dr - Rs 3,000
- To X's current A/c - Rs 4,000
The Adjustment Table has been attached below.
