Question

P and Q were partners in a firm sharing profits and losses equally. Their fixed capitals were Rs 1,00,000 and Rs 50,000 respectively. The partnership deed provided for interest on capital @ 10% per annum. For the year ended 31st March 2016, the profits of the firm were distributed without providing interest on capital
Pass necessary adjustment entry to rectify the error.

Answer 1

Journal
Date	Particulars	L.F.	Dr. Rs	Cr. Rs
	Q’s Current A/c      Dr          To P’s Current A/c (Being interest on capital, now adjusted)		2,500	2,500

Working Note:

Statement Showing Adjustment
	P	Q	Total
Interest on capital@10%	10,000	5,000	(15,000)
Less: Profit wrongly distributed to the extent of interest amount	(7,500)	(7,500)	15,000
Net Effect (Profit sharing)	(2,500)	(2,500)	NIL