Question

Azad and Benny are equal partners. Their capitals are Rs 40,000 and Rs 80,000, respectively.After the accounts for the year have been prepared it is discovered that interest at 5% p.a. as provided in the partnership agreement, has not been credited to the capital accounts before distribution of profits. It is decided to make an adjustment entry at the beginning of the next year. Record the necessary journal entry.

Answer 1

Interest on Capital

Azad = `40000 xx 5/100 = "Rs"  2000`

Benny = `80000 xx 5/100 = "Rs"  4000`

Adjustment of Profit

	Azad	Benny		Total
Interest on Capital	2,000	4,000	=	6,000
Less: Wrong distribution of Profit Rs 6,000 (1: 1)	(3,000)	(3,000)	=	(6,000)
Adjusted Profit	(1,000)	(1,000)	=	NIL

Adjusting Journal Entry

Date	Particulars		L.F	Debit Amount Rs	Credit Amount Rs
	Azad's Current  A/c Dr.    To Benny's Current A/c (Adjustment of profit made)			1,000	1000