Question

Ikka, Dukka and Teeka were partners sharing profits and losses in the ratio of 2 : 2 : 1. Their fixed capital balances were ₹ 5,00,000; ₹ 4,00,000 and ₹ 3,00,000 respectively. For the year ended March 31, 2024, profits of ₹ 84,000 were distributed without providing for interest on capital @ 10% p.a. as per the partnership deed.

While passing an adjustment entry, which of the following is correct?

विकल्प

• Teeka will be debited by ₹ 4,200.

• Teeka will be credited by ₹ 4,200.

• Teeka will be credited by ₹ 6,000.

• Teeka will be debited by ₹ 6,000.

Answer 1

Teeka will be credited by ₹ 4,200.

Explanation:

Calculate interest on capital:

Ikka = `5,00,000 xx 10/100`

= 50,000

Dukka = `4,00,000 xx 10/100`

= 40,000

Teeka = `3,00,000 xx 10/100`

= 30,000

Total interest on capital = 50,000 + 40,000 + 30,000

=  ₹ 1,20,000

The profit of ₹ 84,000 was distributed in the profit-sharing ratio of 2 : 2 : 1, without providing for interest on capital.

Ikka = `84,000 xx 2/5`

= 33,600

Dukka = `84,000 xx 2/5`

= 33,600

Teeka = `84,000 xx 1/5`

= 16,800

Since the total interest on capital ₹ 1,20,000 is more than the available profit ₹ 84,000, the entire profit will be appropriated towards the interest on capital.

The profit will be distributed in the ratio of the interest on capital entitlements (₹ 50,000 : ₹ 40,000 : ₹ 30,000 which simplifies to 5 : 4 : 3).

Ikka = `84,000 xx 5/12`

= 35,000

Dukka = `84,000 xx 4/12`

= 28,000

Teeka = `84,000 xx 3/12`

= 21,000

The amount he should have received was ₹ 21,000, but the amount he actually received was ₹ 16,800.

Difference = ₹ 21,000 − ₹ 16,800

= ₹ 4,200