Question

E, F, and G were partners in a firm sharing profits in the ratio of 3 : 2 : 1. After the division of the profits for the year ended 31-3-2022, their capitals were E ₹ 2,95,000, F ₹ 3,30,000, and G ₹ 3,35,000. During the year, they withdrew ₹ 40,000 each. The profit of the year was ₹ 1,80,000. The partnership deed provided that interest on capital will be allowed @ 12% p.a. While preparing the final accounts, interest on partner’s capital was not allowed.

You are required to calculate the capital of E, F and G as of 1-4-2021 and pass the necessary adjustment entry for providing interest on capital. Show your workings clearly.

Answer 1

Table Showing Adjustment
Particulars	E		F		G		Total
	Dr.	Cr.	Dr.	Cr.	Dr.	Cr.	Dr.	Cr.
Interest on Capital @ 12% p.a.		29,400		37,200		41,400	1,08,000
Loss distributed in 3 : 2 : 1.	54,000		36,000		18,000			1,08,000
	54,000	29,400	36,000	37,200	18,000	41,400	1,08,000	1,08,000
	24,600 (Dr.)		1,200 (Cr.)		23,400 (Cr.)

 

Adjusting Journal Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	E’s Capital A/c   ...Dr.		24,600	-
	To F’s Capital A/c		-	1,200
	To G’s Capital A/c		-	23,400
	(Being interest on capital omitted, now rectified.)

Working Note:

Calculation of interest on partner’s capital:

E’s Opening Capital = E’s Closing Capital + E’s Drawing − E’s Share of profit

= `2,95,000 + 40,000 − 1,80,000 xx 3/6`

= 3,35,000 − 90,000 

= 2,45,000

Interest on E’s Capital = `2,45,000 xx 12/100`

= 29,400

F’s Opening Capital = F’s Closing Capital + F’s Drawing − F’s Share of profit

= `3,30,000 + 40,000 − 1,80,000 xx 2/6`

= 3,70,000 − 60,000

= 3,10,000

Interest on F’s Capital = `3,10,000 xx 12/100`

= 37,200

G’s Opening Capital = G’s Closing Capital + G’s Drawing − G’s Share of profit

= `3,35,000 + 40,000 − 1,80,000 xx 1/6`

= 3,75,000 − 30,000

= 3,45,000

Interest on F’s Capital = `3,45,000 xx 12/100`

= 41,400