Question

The capital accounts of Amar and Harsh stood at  20,000 and 30,000 respectively after the necessary
adjustments in respect of drawings and net profit for the year ended 31st March, 2017. lt was subsequently
ascertained that interest on capital @ 12% per annum was not taken into account while arriving at the
divisible profits for the year.
During the year 2016-17, Amar had withdrawn 2,000 and Harsh's drawings were ` 1,000.
The net profit for the year amounted to  15,000.
The partners shared profits and losses in the ratio of 3:2.
You are required to pass the necessary journal entries to rectify the error in accounting.

Answer 1

Date	Particular	L.F.	Amount	Amount
	Amar’s Capital A/c...... Dr  Harsh’s Capital A/c........ Dr  To P/L Adjustment A/c  (Being incorrect profits cancelled)		9,000                       6,000	15,000
	Interest on Capital A/c... Dr  To Amar’s Capital A/c  To Harsh’s Capital A/c  (Being interest on capital not credited earlier rectified)		4,560	1,560          3,000
	P/L Adjustment A/c .....Dr  To Interest on Capital  (Being IOC transferred to P/L Adj. A/c)		4,560	4,560
	P/L Adjustment A/c  .... Dr  To Amar’s Capital A/c  To Harsh’s Capital A/c  (Being correct profits credited to partner’s capital A/c)		10,440	6,264         4,176

  Working Notes :                            

                                              Partners’ Capital Accounts

Particulars	Amar	Harsh	Particulars	Amar	Harsh
To Drawings	2.000	1,000	By Balance b/d	13,000	25,000
To Bal. c/d	20,000	30,000	By Profit	9,000	6,000
	22,000	31,000		22,000	31,000