Question

Deepa, Ridhi and Adit are partners in a firm. Following are the particulars of their Capital and Drawings Accounts for the year 2023-24:

Particulars	Deepa (₹)	Ridhi (₹)	Adit (₹)
Capital as on 1st April, 2023	1,00,000	80,000	20,000 (Dr.)
Drawings (in two installments of ₹ 7,500 each made at the end of every half year)	-	15,000	-
Interest-free loan from the firm	-	-	5,000

According to their partnership deed:

• Profits were to be shared in the ratio of 2 : 2 : 1.
• Interest on capital to be allowed @ 5% per annum.
• Interest on drawings to be charged @ 8% per annum.

The trading profits of the firm for the financial year 2023-24 were ₹ 50,000, before considering the discrepancy of having recorded the inventory at ₹ 10,000 when its realisable value was ₹ 4,000.

(i) You are required to give:

1. The adjusting entry and closing entry for Drawings made by Ridhi.
2. The adjusting entry and closing entry for Interest on Drawings.
3. The adjusting entry and closing entry for Interest on Capital.
4. The entry to close the Adit’s Loan A/c.

(ii) The accountant of the firm distributed the divisible profit among the partners in the ratio 2 : 1 : 2 instead of in the ratio mentioned in the deed.

You are required to rectify the lapse in accounting by passing a single adjusting entry.

Answer 1

(i) 1. 

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2023
Sept. 30	Ridhi’s Capital A/c   ...Dr.		7,500	-
	To Cash/Bank A/c		-	7,500
	(Being drawings made by Ridhi.)
2024
March 31	Ridhi’s Capital A/c   ...Dr.		7,500	-
	To Cash/Bank A/c		-	7,500
	(Being drawings made by Ridhi.)
March 31	Ridhi’s Capital A/c   ...Dr.		15,000	-
	To Ridhi’s Drawings A/c		-	15,000
	(Being drawings account closed by transferring to capital account.)

2.

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2024
March 31	Ridhi’s Capital A/c   ...Dr.		300	-
	To Interest on Drawings A/c		-	300
	(Being interest on drawings charged.)
March 31	Interest on Drawings A/c   ...Dr.		300	-
	To Profit and Loss Appropriation A/c		-	300
	(Being interest on a drawing account closed.)

3.

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2024
March 31	Interest on Capital A/c   ...Dr.		9,000	-
	To Deepa’s Capital A/c		-	5,000
	To Ridhi’s Capital A/c		-	4,000
	(Being interest on capital allowed.)
March 31	Profit and Loss Appropriation A/c   ...Dr.		9,000	-
	To Interest on Capital A/c		-	9,000
	(Being interest on capital account closed.)

4.

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2024
March 31	Adit’s Capital A/c   ...Dr.		5,000	-
	To Loan to Adit A/c		-	5,000
	(Being Adit’s loan A/c closed.)

(ii)

Adjusting Journal Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2024
March 31	Adit’s Capital A/c   ...Dr.		7,060	-
	To Ridhi’s Capital A/c		-	7,060
	(Being an error of profits distributed in the incorrect ratio rectified.)

Working Notes:

Table Showing Adjustments
Particulars	Deepa (₹)	Ridhi (₹)	Adit (₹)	Total
Divisible profit of ₹ 35,300 distributed in incorrect ratio of 2 : 1 : 2 (Dr.)	14,120	7,060	14,120	35,300
Divisible profit of ₹ 35,300 distributed in correct ratio of 2 : 2 : 1 (Cr.)	14,120	14,120	7,060	35,300
Net Effect	-	7,060 (Cr.)	7,060 (Dr.)	-