Question

Anil, Sunil, and Sanjay have omitted interest on capital for the two years ended on 31st March, 2023. Their fixed capitals in two years were Anil ₹ 8,00,000, Sunil ₹ 7,00,000, and Sanjay ₹ 3,00,000. The rate of interest on capital is 10% p.a. Their profit sharing ratios were in the first year 4 : 3 : 2 and in the second year 3 : 2 : 1.

Give the necessary adjusting entry at the beginning of next year.

Answer 1

Necessary Adjusting Entry
Particulars	Dr. ₹	Cr. ₹
Anil’s Current A/c Dr.	10,000
Sanjay’s Current A/c Dr.	10,000
To Sunil’s Current A/c		20,000

Working note:

Step 1: Interest on Capital per year

At 10% p.a.:

• Anil: ₹ 8,00,000 × 10% = ₹ 80,000
• Sunil: ₹ 7,00,000 × 10% = ₹ 70,000
• Sanjay: ₹ 3,00,000 × 10% = ₹ 30,000

Total interest each year:

₹ 80,000 + ₹ 70,000 + ₹ 30,000 = ₹ 1,80,000

First Year - Ratio 4 : 3 : 2

The total interest of ₹ 1,80,000 would have reduced the divisible profit. Its burden in the ratio 4 : 3 : 2 is:

Partner	Interest due ₹	Share of ₹1,80,000 ₹	Net Adjustment
Anil	80,000	80,000	Nil
Sunil	70,000	60,000	+10,000
Sanjay	30,000	40,000	–10,000

Second Year - Ratio 3 : 2 : 1

Share of ₹ 1,80,000:

• Anil = ₹ 1,80,000 × `3/6` = ₹ 90,000
• Sunil = ₹ 1,80,000 × `2/6` = ₹ 60,000
• Sanjay = ₹ 1,80,000 × `1/6` = ₹ 30,000

Partner	Interest due ₹	Share of ₹1,80,000 ₹	Net Adjustment
Anil	80,000	90,000	–10,000
Sunil	70,000	60,000	+10,000
Sanjay	30,000	30,000	Nil

Total adjustment for two years

Partner	1st Year	2nd Year	Final Adjustment
Anil	Nil	–10,000	Dr. ₹10,000
Sunil	+10,000	+10,000	Cr. ₹20,000
Sanjay	–10,000	Nil	Dr. ₹10,000