Question

The capital accounts of P, Q and R stood at ₹ 200,000, ₹ 1,50,000 and ₹ 1,00,000, respectively, after the necessary adjustments in respect of drawings and net profit for the year ended 31st March, 2024. It was subsequently ascertained that interest on capital @ 10% p.a. was not taken into account while arriving at the divisible profits for the year.

Drawings during the year 2023-24 had been P ₹ 5,000 per month, Q ₹ 15,000 quarterly and R ₹ 30,000.

The net profit for the year amounted to ₹ 1,80,000 and partners shared profits and losses in the ratio of 2 : 2 : 1. You are required to pass the necessary journal entries to rectify the lapse in accounting.

Hints:

1. Entry will be passed for withdrawing the profit of ₹ 1,80,000 already distributed among the partners.
2. Entries will be passed for interest on capital of ₹ 42,000.
3. Entry will be passed for distributing the corrected net profit of ₹ 1,38,000 among the partners.

Answer 1

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2024
April 1	P’s Capital A/c   ...Dr.		72,000	-
	Q’s Capital A/c   ...Dr.		72,000	-
	R’s Capital A/c   ...Dr.		36,000	-
	To Profit and Loss Adjustment A/c		-	1,80,000
	(Being previously distributed profit reversed through Profit and Loss Adjustment A/c.)
March 31	Interest on Capital A/c   ...Dr.		42,000	-
	To P’s Capital A/c		-	18,800
	To Q’s Capital A/c		-	13,800
	To R’s Capital A/c		-	9,400
	(Being interest on capital provided to partners at the agreed rate.)
March 31	Profit and Loss Adjustment A/c   ...Dr.		42,000	-
	To Interest on Capital A/c		-	42,000
	(Being interest on capital transferred to Profit and Loss Adjustment A/c.)
March 31	Profit and Loss Adjustment A/c   ...Dr.		1,38,000	-
	To P’s Capital A/c		-	55,200
	To Q’s Capital A/c		-	55,200
	To R’s Capital A/c		-	27,600
	(Being balance profit distributed among partners in the correct profit-sharing ratio.)

Working Note:

Calculation of Opening Capital:

Particulars	P (₹)	Q (₹)	R (₹)
Closing Capitals	2,00,000	1,50,000	1,00,000
Add: Drawings	60,000	60,000	30,000
	2,60,000	2,10,000	1,30,000
Less: Share of Profit (₹ 1,80,000 in 2 : 2 : 1)	72,000	72,000	36,000
Opening Capitals	1,88,000	1,38,000	94,000

Calculation of Profit Distribution:

Particulars	P (₹)	Q (₹)	R (₹)	Total
Profit for the year	-	-	-	1,80,000
Less: Interest on Capital @10%	18,800	13,800	9,400	42,000
Balance Profit	-	-	-	1,38,000
Add: Share of Balance Profit (2 : 2 : 1)	55,200	55,200	27,600