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Question
John and Tanu were partners in a firm sharing profits and losses in the ratio of 1 : 2. The following was the Balance Sheet of the firm as at 31st March, 2024.
| Balance sheet as on 31st March, 2024 | ||||
| Liabilities | Amount (₹) | Amount (₹) | Assets | Amount (₹) |
| Capital Accounts: | 12,00,000 | Cash in Hand | 2,50,000 | |
| John | 5,00,000 | Sundry Assets | 9,00,000 | |
| Tanu | 7,00,000 | Drawings: John | 50,000 | |
| 12,00,000 | 12,00,000 | |||
The profits of ₹ 2,40,000 for the year ended 31st March, 2024, were divided between partners without allowing interest on capitals @ 7% p.a. without charging interest on drawings @ 6% p.a.
The drawings of the partners were:
John: ₹ 12,500 per quarter at the beginning of each quarter.
Tanu: ₹ 7,500 p.m. at the end of every month.
Showing your workings clearly, pass the necessary adjustment entry in the books of the firm.
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Solution
| Journal Entry |
||||
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
| Tanu’s Capital A/c ...Dr. | 6,808 | - | ||
| To John’s Capital A/c | - | 6,808 | ||
| (Being rectification of omission of interest on capital and interest on drawings, adjusted through partner’s capital accounts.) | ||||
Calculation of Opening Capitals:
| Particulars | John (₹) | Tanu (₹) |
| Closing Capitals | 5,00,000 | 7,00,000 |
| Add: Drawings | 50,000 | 90,000 |
| 5,50,000 | 7,90,000 | |
| Less: Share of Profit (₹ 2,40,000 in 1 : 2) | (80,000) | (1,60,000) |
| Opening Capitals | 4,70,000 | 6,30,000 |
Past Adjustment Table:
| Particulars | John (₹) | Tanu (₹) | Total (₹) |
| Interest on Capital (7%) | 32,900 | 44,100 | 77,000 |
| Division of 77,000 in profit-sharing ratio (Dr.) | 25,667 | 51,333 | 77,000 |
| Difference (1) | 7,233 (Cr.) | 7,233 (Dr.) | - |
| Interest on drawings (6%) | 1,875 | 2,475 | 4,350 |
| Division of 4,350 in profit-sharing ratio 1 : 2 (Cr). | 1,450 | 2,900 | 4,350 |
| Difference (2) | 425 (Dr.) | 425 (Cr.) | - |
| Difference between (1) and (2) | 6,808 (Cr.) | 6,808 (Dr.) |
Working Note:
Calculate interest on drawings:
1. John’s total drawings = 12,500 × 4
= 50,000
Interest on drawings = `50,000 xx 6/100 xx 7.5/12`
= 1,875
2. Tanu’s total drawings = 7,500 × 12
= 90,000
Interest on drawings = `90,000 xx 6/100 xx 5.5/12`
= 2,475
Notes
The answer given in the textbook is different. However, as per the calculation based strictly on the figures provided in the Balance Sheet, the net adjustment works out to ₹ 6,808.
