12th | Accounting For Partnership Firms Fundamentals | Question No.  56 To 60 | Solution 2022-2023

Azad and Benny are equal partners. Their capitals are  ` 40,000 and  ` 80,000 respectively. After the accounts for the year had been prepared, it was noticed that interest @ 5% p.a. as provided in the Partnership Deed was not credited to their Capital Accounts before distribution of profits. It is decided to pass an adjustment entry in the beginning of the next year. Record the necessary Journal entry.

Interest on Capital
 

Azad	=	40,000 ×	5100	=  ` 2,000
Benny	=	80,000 ×	5100	=  ` 4,000

Adjustment of Profit

	Azad	Benny		Total
Interest on Capital	2,000	4,000	=	6,000
Less: Wrong distribution of Profit ` 6,000 (1: 1)	(3,000)	(3,000)	=	(6,000)
Adjusted Profit	(1,000)	(1,000)	=	NIL

Adjusting Journal Entry 

Date	Particular		L.F	Debit Amount ( `)	Credit Amount ( `)
	Azad's Current A/c	Dr.		1,000
	To Benny's Current A/c				1,000
	(Adjustment of profit made)

Ram, Mohan and Sohan sharing profits and losses equally have capitals of  ` 1,20,000,  ` 90,000 and  ` 60,000 respectively. For the year ended 31st March, 2022, interest was credited to them @ 6% instead of 5%.
Give adjustment Journal entry.

Journal
Particulars		L. F.	Debit ( `)	Credit ( `)
Ram’s Capital A/c	Dr.		300
To Sohan’s Capital A/c				300
(Interest on Capital was wrongly credited, now adjusted)

Working Notes:

WN 1 Calculation of Interest on Capital at 6% p.a.

Interest on Ram’s capital=1,20,000×6/100=7,200

Interest on Mohan’s capital=90,000×6/100=5,400

Interest on Sohan’s capital=60,000×6/100=3,600

 

WN 2 Calculation of Interest on Capital at 5% p.a.

Interest on Ram’s capital=1,20,000×5/100=6,000

Interest on Mohan’s capital=90,000×5/100=4,500

Interest on Sohan’s capital=60,000×5/100=3,000

 

WN 3

Statement Showing Adjustment
Particulars	Ram	Mohan	Sohan	Total
Interest on Capital wrongly credited at 6% p.a. reversed	(7,200)	(5,400)	(3,600)	(16,200)
Interest on Capital credited at 5% p.a.	6,000	4,500	3,000	13,500
Wrong Distribution	(1,200)	(900)	(600)	(2,700)
Right Distribution of ` 2,700 (1:1:1)	900	900	900	(2,700)
Net Effect	(300)	NIL	300	NIL

Ram, Shyam and Mohan were partners in a firm sharing profits and losses in the ratio of 2 : 1 : 2. Their capitals were fixed at  ` 3,00,000,  ` 1,00,000,  ` 2,00,000. For the year ended 31st March, 2022, interest on capital was credited to them @ 9% instead of 10% p.a. The profit for the year before charging interest was  ` 2,50,000.
Show your working notes clearly and pass necessary adjustment entry.

	Journal
Date	Particulars		L.F.	Debit ( `)	Credit ( `)
2022 March 31	Shyam’s Current A/c	Dr.		200
	Mohan’s Current A/c	Dr.		400
	To Ram’s Current A/c				600
	(Interest on Capital adjusted)

Working Notes:

 

WN 1 Calculation of Interest on Capital 10% p.a.

Interest on Ram’s capital=3,00,000×10/100=30,000

Interest on Shyam’s capital=1,00,000×10/100=10,000

Interest on Mohan’s capital=2,00,000×10/100=20,000

 

WN 2 Calculation of Interest on Capital 9% p.a.

Interest on Ram’s capital=3,00,000×9/100=2,7000

Interest on Shyam’s capital=1,00,000×9/100=9,000

Interest on Mohan’s capital=2,00,000×9/100=18,000

 

WN 3

Statement Showing Adjustment
Particulars	Ram	Shyam	Mohan	Total
Interest on Capital credited at 10% p.a.	30,000	10,000	20,000	60,000
Interest on Capital wrongly credited at 9% p.a. reversed	(27,000)	(9,000)	(18,000)	(54,000)
Right distribution	3,000	1,000	2,000	6,000
Wrong distribution of ` 6,000 (2 : 1 : 2)	(2,400)	(1,200)	(2,400)	(6,000)
Net Effect	600	(200)	(400)	NIL

 

Simrat and Bir are partners in a firm sharing profits and losses in the ratio of 3 : 2. On 31st March, 2022 after closing the books of account, their Capital Accounts stood at  ` 4,80,000 and  ` 6,00,000 respectively. On 1st May, 2021, Simrat introduced an additional capital of  ` 1,20,000 and Bir withdrew  ` 60,000 from his capital.On 1st October, 2021, Simrat withdrew  ` 2,40,000 from her capital and Bir introduced  ` 3,00,000. Interest on capital is allowed at 6% p.a. Subsequently, it was noticed that interest on capital @ 6% p.a. had been omitted. Profit for the year ended 31st March, 2022 amounted to  ` 2,40,000 and the partners' drawings had been: Simrat –  ` 1,20,000 and Bir –  ` 60,000. Compute the interest on capital if the capitals are (a) fixed, and (b) fluctuating.

Case 1: If Capitals are fixed:

Calculation of Interest on Capital

Interest on Capital Simrat=(6,00,000×6×1/100×12)+(7,20,000×6×5/100×12)+(4,80,000×6×6/100×12)=35,400

Interest on Capital Bir=(3,60,000×6×1/100×12)+(3,00,000×6×5/100×12)+(6,00,000×6×6/100×12)=27,300

Working Notes:

WN1: Calculation of Opening Capital:

Particulars	Simrat	Bir
Capital at the end	4,80,000	6,00,000
Add: Drawings out of capital	2,40,000	60,000
Less: Fresh capital introduced	1,20,000	3,00,000
Capital at the beginning	6,00,000	3,60,000

 

Case2: If Capitals are Fluctuating:

Calculation of Interest on Capital

Interest on Capital Simrat=(5,76,000×6×1/100×12)+(6,96,000×6×5/100×12)+(4,56,000×6×6/100×12)= 33,960

Interest on Capital Bir=(3,24,000×6×1/100×12)+(2,64,000×6×5/100×12)+(5,64,000×6×6/100×12)= 25,140

Working Notes:

WN1: Calculation of Opening Capital:

Particulars	Simrat	Bir
Capital at the end	4,80,000	6,00,000
Add: Drawings out of capital	2,40,000	60,000
Add: Drawings out of profit	1,20,000	60,000
Less: Fresh capital introduced	1,20,000	3,00,000
Less: Profit already credited	1,44,000	96,000
Capital at the beginning	5,76,000	3,24,000

 

 

 

 

 

 

Profit earned by a partnership firm for the year ended 31st March, 2022 were distributed equally between the partners – Pankaj and Anu – without allowing interest on capital. Interest due on capital was Pankaj –  ` 3,000 and Anu –  ` 1,000.
Pass necessary adjustment entry.

Journal
Date	Particulars		L.F.	Debit ( `)	Credit ( `)
	Anu’s  Capital A/c	Dr.		1,000
	To Pankaj’s Capital A/c				1,000
	(Adjustment of omission of Interest on Capital)

Working Note:

Statement Showing Adjustment
Particulars	Pankaj	Anu	Total
Interest on Capital to be credited	3,000	1,000	4,000
Profit wrongly distributed equally to be debited	(2,000)	(2,000)	(4,000)
Net Effect	1,000 (Cr.)	1,000 (Dr.)	NIL