Question

Jay and Vijay were partners in a firm sharing profits and losses in the ratio of 7 : 3. Their respective fixed capitals were ₹ 9,00,000 and ₹ 7,00,000. The partnership deed provided for interest on capital @ 8% per annum. After preparing the accounts for the year ended 31st March 2024, it was discovered that interest on capital was allowed @ 9% per annum.

Showing your workings clearly, pass the necessary journal entry to rectify the error.

Answer 1

Adjustment Journal Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2024
Mar 31	Vijay’s Current A/c   ...Dr.		2,200
	To Jay’s Current A/c			2,200
	(Being the adjustment entry passed to rectify the excess interest on capital allowed to partners)

Working note:

1. Calculate the Excess Interest Allowed

Jay's Excess Interest: `9,00,000 xx 1% = 9,000`

Vijay's Excess Interest: `7,00,000 xx 1% = 7,000`

Total Excess Interest Debited to Firm: `9,00,000 + 7,00,000 = 16,000`

2. Statement Showing the Required Adjustment (Table Showing Past Adjustments)

Particulars	Jay (₹)	Vijay (₹)	Firm (Total) (₹)
Amount to be Debited (Reversal of 1% excess Interest on Capital)	9,000 (Dr.)	7,000 (Dr.)	16,000 (Cr.)
Amount to be Credited (Distribution of recovered ₹16,000 profit in 7:3 ratio)	11,200 (Cr.)	4,800 (Cr.)	16,000 (Dr.)
Net Effect	2,200 (Cr.)	2,200 (Dr.)	Nil

Calculations for profit distribution:

Jay's Share: `16,000 xx 7/10 = 11,200`

Vijay's Share: `16,000 xx 3/10 = 4,800`