Question

After the accounts of a partnership have been drawn up and the books closed off, it is discovered that for the years ended 31st March, 2023 and 2024, interest has been credited to the partners upon their capitals at 5% per annum, although no provision for interest is made in the partnership agreement.

The amounts involved are:

Year	Interest credited
	A (₹)	B (₹)	C (₹)
2023	4,200	2,400	1,320
2024	4,320	2,520	1,320

You are required to put through an adjusting entry as on 1st April, 2024, if the profits were shared as follows in 2023, 2 : 2 : 1, and in 2024, 3 : 4 : 3.

Answer 1

Table showing Adjustment
Particulars	A	B	C	Total
Cancellation of interest on capitals @ 5% p.a. (Dr.)
For the year 2023	4,200	2,400	1,320	7,920
For the year 2024	4,320	2,520	1,320	8,160
Total amount recoverable from partners (Dr.)	8,520	4,920	2,640	16,080
Division of firm’s profit will be as under: (Cr.)
For the year 2023 in the ratio of 2 : 2 : 1	3,168	3,168	1,584	7,920
For the year 2024 in the ratio of 3 : 4 : 3	2,448	3,264	2,448	8,160
Total profit distributed among partners (Cr.)	5,616	6,432	4,032	16,080
Net Effect	(Dr.) 2,904	(Cr.) 1,512	(Cr.) 1,392

 

Adjusting Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2024
March 31	A’s Capital A/c   ...Dr.		2,904	-
	To B’s Capital A/c		-	1,512
	To C’s Capital A/c		-	1,392
	(Interest on capital wrongly provided in the accounts for two years and is now adjusted.)