Question

A and B are partners sharing profits and losses in the ratio of 3 : 2. Their capital on 31^st March, 2018 after all adjustments stood at ₹ 1,65,500 and ₹ 1,27,600 respectively. Profits amounting to ₹ 50,000 for the year 2017-18 were distributed after allowing interest on drawings @ 12% p.a. During the year A withdrew ₹ 15,000 at the beginning of every quarter and B withdrew ₹ 40,000 during the year Partnership deed is silent on interest on drawings but provides for interest on Capital @ 5% p.a. Interest on Capital has not been provided.

Showing your working clearly, pass the necessary adjustment entry to rectify the above errors.

Answer 1

Adjustment Entry
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
	A’s Capital A/c    ...Dr.		140	-
	To B’s Capital A/c		-	140
	(Being adjustment entry made for omission of interest on capital and wrongly charging interest on drawings.)

Working Note:

1. Calculation of Opening Capital

Particulars	L.F.	A (₹)	B (₹)
Closing Capital		1,65,500	1,27,600
Add: Drawings		60,000	40,000
		2,25,500	1,67,600
Less: Share of Profit		30,000	20,000
		1,95,500	1,47,600
Add: Interest on Drawings		4,500	2,400
Opening Capital		2,00,000	1,50,000

2. Calculation of Interest on Drawings:

A = ₹ `60,000xx12/100xx(7(1)/2)/12` = ₹ 4,500

B = ₹ `40,000xx12/100xx6/12` = ₹ 2,400

3. Calculation of Interest on Capital

A = ₹ 2,00,000 × 5% = ₹ 10,000

B = ₹ 1,50,000 × 5% = ₹ 7,500

Adjustment Table
Particulars	A’s Capital		A’s Capital		Firm
	Dr. (₹)	Cr. (₹)	Dr. (₹)	Cr. (₹)	Dr. (₹)	Cr. (₹)
Profit already distributed	30,000		20,000			50,000
Interest on drawings wrongly charged		4,500		2,400	6,900
Interest on capital to be allowed		10,000		7,500	17,500
Share in profit to be credited		15,360		10,240	25,600
Total	30,000	29,860	20,000	20,140
Adjustment Required	140			140