Question

A and B are partners sharing profits and losses in the ratio of 3 : 1. Following is the balance sheet of the firm as of 31st March, 2024.

Liabilities	₹	Assets	₹	₹
A’s Capital	90,000	Drawings:		18,000
B’s Capital	30,000	A	12,000
		B	6,000
		Sundry Assets		1,02,000
	1,20,000			1,20,000

Profit for the year ended 31st March, 2024 ₹ 24,000, was divided between the partners in their profit-sharing ratio, but interest on capital at 5% p.a. and on drawings at 6% p.a. was inadvertently ignored. Give the necessary adjustment entry for the adjustment of interest. Interest on drawings may be calculated on an average basis for 6 months.

Answer 1

1. Calculation of Opening Capitals:

Particulars	A (₹)	B (₹)
Closing Capitals	90,000	30,000
Less: Profit (₹ 24,000 in 3 : 1)	12,000	4,000
Opening Capitals	78,000	26,000

Since drawings appear in the balance sheet, these have not been deducted from the partner’s capitals so far. Hence, in order to calculate the opening capitals, the drawings have not been added back.

2.

Particulars	A (₹)	B (₹)
Interest on Capital (5%)	3,900	1,300
Less: Interest on Drawings for 6 months @ 6% p.a A = `12,000 xx 6/100 xx 6/12` B =  `6,000 xx 6/100 xx 6/12`	360	180
Balance (Cr.)	3,540	1,120
Less: Net loss to the firm 3,540 + 1,120 = 4,660. This loss will be charged from A and B in their profit-sharing ratio, i.e., 3 : 1 (Dr.)	3,495	1,165
Net Effect	(Cr.) 45	(Dr.) 45

 

Adjusting Entry In the books of A and B
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2024
March 31	B’s Capital A/c   ...Dr.		45	-
	To A’s Capital A/c		-	45
	(Adjustment regarding interest on capital and drawings.)