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Question -

On March 31, 2017 the balance in the capital accounts of Eluin, Monu and Ahmed, after making adjustments for profits, drawing, etc; were ₹ 80,000, ₹ 60,000 and ₹ 40,000 respectively. Subsequently, it was discovered that interest on capital and interest on drawings had been omitted. The partners were entitled to interest on capital @ 5% p.a. The drawings during the year were Eluin ₹ 20,000; Monu, ₹ 15,000 and Ahmed, ₹ 9,000. Interest on drawings chargeable to partners were Eluin ₹ 500, Monu ₹ 360 and Ahmed ₹ 200. The net profit during the year amounted to ₹ 1, 20,000. The profit sharing ratio was 3: 2: 1. Pass necessary adjustment entries.



Answer -

In this questioninterest on capital shall be calculated on opening capital

 

Eluin

Monu

Ahmed

Capital  on 31 Mar. 2017 (Closing Capital)

80,000

60,000

40,000

Add: Drawings

20,000

15,000

9,000

Less: Profit ₹ 120,000 (3:2:1)

(60,000)

(40,000)

(20,000)

Capital on April 01, 2016 (Opening Capital)

40,000

35,000

29,000

 

Adjustmentof Profit

 

 

Eluin

Monu

Ahmed

 

Total

Interest on Capital (on Opening Capital)

2,000

1,750

1,450

=

5,200

Less: Interest on Drawings

(500)

(360)

(200)

=

(1,060)

Right distribution of ₹ 4,140

1,500

1,390

1,250

=

4,140

Less: Wrong distribution of ₹ 4,140 (in the ratio 3:2:1)

(2,070)

(1,380)

(690)

=

(4,140)

 

(570)

10

560

=

NIL

 

AdjustingJournal Entry

 

Date

 

Particulars

 

L.F.

Debit Amount

₹

Credit Amount ₹

 

 

 

 

 

 

 

Eluin’s Capital A/c

Dr.

 

570

 

 

To Monu’s Capital A/c

 

 

 

10

 

To Ahmed’s Capital A/c

 

 

 

560

 

(Adjustment of Profit made)

 

 

 

 

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