Question

On 31st March, 2024, the balances in the capital accounts of A, B and C after making adjustments for profits and drawings were ₹ 3,20,000, ₹ 2,40,000 and ₹ 1,60,000, respectively. Subsequently, it was discovered that the interest on capital and drawings had been omitted.

• The profit for the year ended on 31st March, 2024, was ₹ 90,000.
• During the year, A and B each withdrew a sum of ₹ 48,000 in equal instalments in the middle of every month, and C withdrew ₹ 60,000.
• The interest on drawings was to be charged @ 5% per annum, and interest on capital was to be allowed @ 10% per annum.
• The profit-sharing ratio of the partners was 3 : 2 : 1.

You are required to:

1. Pass the necessary journal entries to rectify the lapse in accounting.
2. Prepare the adjusted capital accounts of partners.

Hints:

1. Entry will be passed for withdrawing the profit of ₹ 90,000 already distributed among the partners.
2. Entries will be passed for interest on capital ₹ 78,600 and interest on drawings ₹ 3,900.
3. Entry will be passed for distributing the corrected net profit of ₹ 15,300 among the partners.

Answer 1

Since interest on capital is always calculated on opening capital and the same has not been given, first of all, it is necessary to calculate the opening capital:

Particulars	A (₹)	B (₹)	C (₹)
Closing Capitals as on 31st March 2024	3,20,000	2,40,000	1,60,000
Less: Share of Profit already added (₹ 90,000 in 3 : 2 : 1)	45,000	30,000	15,000
	2,75,000	2,10,000	1,45,000
Add: Drawings (previously deducted)	48,000	48,000	60,000
Opening Capitals as on 1st April 2023	3,23,000	2,58,000	2,05,000

Interest on Capital:

A = `3,23,000 xx 10/100`

= 32,300

B = `2,58,000 xx 10/100`

= 25,800

C = `2,05,000 xx 10/100`

= 20,500

Total Interest on Capital = 32,300 + 25,800 + 20,500

= 78,600

Interest on Drawings:

A = On ₹ 48,000 for 6 months

= `48,000 xx 5/100 xx 6/12`

= 1,200

B = On ₹ 48,000 for 6 months

= `48,000 xx 5/100 xx 6/12`

= 1,200

C = On ₹ 60,000 for 6 months

= `60,000 xx 5/100 xx 6/12`

= 1,500

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2025
April 1	A’s Capital A/c   ...Dr.		45,000	-
	B’s Capital A/c   ...Dr.		30,000	-
	C’s Capital A/c   ...Dr.		15,000	-
	To Profit and Loss Adjustment A/c		-	90,000
	(Being previously distributed profit of ₹ 90,000 reversed through Profit and Loss Adjustment A/c.)
April 1	Interest on Capital A/c   ...Dr.		78,600	-
	To A’s Capital A/c		-	32,300
	To B’s Capital A/c		-	25,800
	To C’s Capital A/c		-	20,500
	(Being interest on capital @10% p.a. provided to partner’s capital accounts.)
April 1	Profit and Loss Adjustment A/c   ...Dr.		78,600	-
	To Interest on Capital A/c		-	78,600
	(Being interest on capital transferred to Profit and Loss Adjustment A/c.)
April 1	A’s Capital A/c   ...Dr.		1,200	-
	B’s Capital A/c   ...Dr.		1,200	-
	C’s Capital A/c   ...Dr.		1,500	-
	To Interest on Drawings A/c		-	3,900
	(Being interest on drawings charged and debited to partner’s capital accounts.)
April 1	Interest on Drawings A/c   ...Dr.		3,900	-
	To Profit and Loss Adjustment A/c		-	3,900
	(Being interest on drawings transferred to Profit and Loss Adjustment A/c.)
April 1	Profit and Loss Adjustment A/c   ...Dr.		15,300	-
	To A’s Capital A/c		-	7,650
	To B’s Capital A/c		-	5,100
	To C’s Capital A/c		-	2,550
	(Being balance profit distributed among partners in the ratio of 3 : 2 : 1.)

 

Dr.	Partner’s Capital Accounts (Adjusted)								Cr.
Date	Particulars	A	B	C	Date	Particulars	A	B	C
2025					2025
April 1	To Profit and Loss Adjustment A/c (Net Profit wrongly distributed)	45,000	30,000	15,000	April 1	By Balance b/d	3,20,000	2,40,000	1,60,000
April 1	To Profit and Loss Adj. A/c (Interest on Drawings)	1,200	1,200	1,500	April 1	By Profit and Loss Adj. A/c (Interest on Capital)	32,300	25,800	20,500
April 1	To Balance c/d	3,13,750	2,39,700	1,66,550	April 1	By Profit and Loss Adj. A/c (Share of Corrected Profit)	7,650	5,100	2,550
		3,59,950	2,70,900	1,83,050			3,59,950	2,70,900	1,83,050