Question

A, B, C, and D are partners sharing profits and losses in 2 : 2 : 3 : 3 respectively. After the accounts of the year had been closed, it was found that interest on drawings @ 6% p.a. has not been taken into consideration. The drawings of the partners were A ₹ 20,000, B ₹ 24,000, C ₹ 32,000, and D ₹ 44,000. Give the necessary adjusting entry.

Answer 1

Calculation of interest on drawings:

Since dates of drawings are not given, interest will be charged for 6 months.

	Amount (₹)
A: 6% on Rs. 20,000 for 6 months	600
B: 6% on Rs. 24,000 for 6 months	720
C: 6% on Rs. 32,000 for 6 months	960
D: 6% on Rs. 44,000 for 6 months	1,320
Total interest on drawings	3,600

This amount of Rs 3,600 is an item of income for the firm, but this has not been recorded on the credit side of the P and L App. A/c of the previous year. As such, the profit of the previous year will now be increased by this amount. Hence, this profit of ₹ 3,600 will be shared by the partners in their profit-sharing ratio of 2 : 2 : 3 : 3.

Table showing adjustment					Amounts (₹)
	A	B	C	D	Total
Interest on Drawings (Dr.)	600	720	960	1,320	3,600
Division of Rs 3,600 in profit-sharing ratio (2 : 2 : 3 : 3)	720	720	1,080	1,080	3,600
Difference	120 (Cr)		120 (Cr)	240 (Dr)

 

Journal Entry
Date	Particulars	L.F	Debit (₹)	Credit (₹)
	D’s Capital A/c   ...Dr.		240	-
	To A’s Capital A/c		-	120
	To C’s Capital A/c		-	120
	(Being an adjustment for omission of interest on drawings)