12th | Accounting For Partnership Firms Fundamentals | Question No.  61 To 65 | Solution 2022-2023

Showing your working clearly, pass the necessary adjustment entry to rectify the error.

 

Particulars	`	`
Ram’s Capital A/c   Dr, Mohan’s Capital A/c   Dr,             To Sohan’s Capital A/c (Being interest on Drawing Charged Wrongly, now Rectified)	180 630	810

 

Working notes:

WN1:

Table of Adjustments

	Ram	Mohan	Sohan
Interest on Drawing Wrongly Debited	1,080	-	1,440
Profits to be credited	1,260	630	630
Amount to adjusted	180(Dr.)	630(Dr.)	810(Cr.)

 

WN2: Interest on Drawing Wrongly Debited

Ram’s Interest on Drawing= 36,000×6/100×6/12=1,080

Sohan’s Interest on Drawing= 48,000×6/100×6/12=1,440

 

WN3: Profits to be credited (1,080+1,440=2,120)

Ram =  2,520×2/4=1,260

Mohan =2,520×1/4=630

Sohan = =2,520×1/4=630

 

Mita and Usha are partners in a firm sharing profits in the ratio of 2 : 3. Their Capital Accounts as on 1st April, 2015 showed balances of  ` 1,40,000 and  ` 1,20,000 respectively. The drawings of Mita and Usha during the year 2015-16 were  ` 32,000 and  ` 24,000 respectively. Both the amounts were withdrawn on 1st January 2016. It was subsequently found that the following items had been omitted while preparing the final accounts for the year ended 31st March, 2016:
(a) Interest on Capital @ 6% p.a.
(b) Interest on Drawings @ 6% p.a.
(c) Mita was entitled to a commission of  ` 8,000 for the whole year.
Showing your working clearly, pass a rectifying entry in the books of the firm.

Journal
Particular		L.F.	Debit ( `)	Credit ( `)
Usha’s Capital A/c	Dr.		6,816
To Mita’sCapital A/c				6,816
(Adjustment made)

 

Particular	Mita	Usha	Total
Interest on Capital @ 6% p.a.	8,400	7,200	(15,600)
Interest on Drawings @ 6% p.a.	(480)	(360)	840
Commission	8,000	–	(8,000)
Right Share	15,920	6,840	(22,760)
Wrong Share	(9,104)	(13,656)	22,760
Net Effect	6,816 (Cr.)	6,816 (Dr.)	Nil

 

A, B and C were partners. Their fixed capitals were `60,000, `40,000 and `20,000 respectively. Their profit sharing ratio was 2 :2 : 1. According to the Partnership Deed, they were entitled to interest on capital @ 5% pa. In addition, 8 was also entitled to draw a salary of `1,500 per month. C was entitled to a commission of 5% on the profits after charging the interest on capital, but before charging the salary payable to B. The net profits for the year, `80,000, were distributed in the ratio of their capitals without providing for any of the above adjustments. Showing your workings clearly, pass the necessary adjustment entry.  (CBSE 2019)

 

 

Date	Particulars				L.F.	Dr. `		Cr. `
31 March	A’s  current      A/c          To B ’s  current      A/      To C’s  current      A/ (Being omission of salary , interest on capital , commission now profit corrected)			Dr.		16,080		14,253 1,827
						16,080		16,080
Correct Profit and loss appropriation account year ended 31 March
Particulars		`	Particulars				`
To cc B=1500×12=18,000 To Commission (C=80,000-6,000×5/100)   To Interest on capital A-60,000×5/100=3,000 B-40,000×5/100=2,000 C-20,000×5/100=1,000 To profit A-52,300×2/5=20,920 B -52,300×2/5=20,920 C -52,300×1/5=10,460		18,000   3,700         6,000       52,300	By  Net profit				80,000 4,500
		80,000					80,000

 

Statement showing Adjustments
Particulars	A		B		C		FIRM
	Dr.	Cr.	Dr.	Cr.	Dr.	Cr.	Dr.	Cr.
Interest on capital Salary omitted Commission omitted Correct Profit omitted Wrong Profit credited	40,000	3,000     20,920	26,667	2,000 18,000   20,920	13,333	1,000   3,700 10,460	6,000 18,000 3,700 52,300	80,000
Total	40,000	23,920	26,667	40,000			80,000	80,000
Net effect	16,080			14,263		1,827

 

On 31st March, 2022, after the closing of the accounts, the Capital Accounts of P, Q and R stood in the books of the firm at  ` 40,000;  ` 30,000 and  ` 20,000 respectively. Subsequently, it was noticed that interest on capital @ 5% had been omitted. Profit for the year ended 31st March, 2022 was  ` 60,000 and the partners' drawings had been P –  ` 10,000, Q –  ` 7,500 and R –  ` 4,500.  Profit-sharing ratio of P, Q and R is 3 : 2 : 1. Give necessary adjustment entry.

Journal
Date	Particulars		L.F.	Debit ( `)	Credit ( `)
2022 Mar.31	P’s Current A/c	Dr.		300
	To Q’s Capital A/c				8
	To R’s Capital A/c				292
	(Interest on Capital was omitted, now adjusted)

Working Notes:

WN 1 Calculation of Capital at the beginning (as on April 01, 2021)

Particulars	P	Q	R
Capital as on March 31, 2022 (Closing)	40,000	30,000	20,000
Add: Drawings	10,000	7,500	4,500
Less: Profit ` 60,000 (3:2:1)	(30,000)	(20,000)	(10,000)
Capital as on April 01, 2021 (Opening)	20,000	17,500	14,500

WN 2 Calculation of Interest on Capital

Interest on P’s capital=20,000×5/100=1000

Interest on Q’s capital=17,500×5/100=875
Interest on R’s capital=14,500×5/100=725
WN 3

Statement Showing Adjustment
Particulars	P	Q	R	Total
Interest on Capital (to be credited)	1,000	875	725	2,600
For sharing above Loss (3:2:1)	(1,300)	(867)	(433)	(2,600)
Net Effect	(300)	8	292	NIL

 

 Mohan, Vijay and Anil are partners, the balances of their Capital Accounts being  ` 30,000,  ` 25,000 and  ` 20,000 respectively. In arriving at these amounts profit for the year ended 31st March, 2022,  ` 24,000 had already been credited to partners in the proportion in which they shared profits. Their drawings were  ` 5,000 (Mohan),  ` 4,000 (Vijay) and  ` 3,000 (Anil) during the year. Subsequently, the following omissions were noticed and it was decided to rectify the errors:
(a) Interest on capital @ 10% p.a.
(b) Interest on drawings: Mohan  ` 250, Vijay  ` 200 and Anil  ` 150.
Make necessary corrections through a Journal entry and show your workings clearly.

	Journal
Date	Particulars		L. F.	Debit ( `)	Credit ( `)
2022 March 31	Anil’s Capital A/c	Dr.		550
	To Mohan’s Capital A/c				550
	(Interest on capital and interest on drawings was omitted, now adjusted)

 

Working Notes:

 

WN 1 Calculation of Capital at the beginning

Particulars	Mohan	Vijay	Anil	Total
Capital at the end	30,000	25,000	20,000	75,000
Add: Drawings	5,000	4,000	3,000	12,000
Less: Profit (1:1:1)	(8,000)	(8,000)	(8,000)	(24,000)
Capital in the beginning	27,000	21,000	15,000	63,000

 

WN 2 Calculation of Interest on Capital

Interest on Mohan’s capital=27,000×10/100=2,700

Interest on Vijay’s capital=21,000×10/100=2,100

Interest on Anil’s capital=25,000×10/100=2,500

 

WN 3

Statement Showing Adjustment
	Mohan	Vijay	Anil	Total
Interest on Capital to be credited	2,700	2,100	1,500	6,300
Less: Interest on Drawings	(250)	(200)	(150)	(600)
Right Distribution of ` 5,700	2,450	1,900	1,350	5,700
Wrong Distribution of ` 5,700 (1 : 1 : 1)	(1,900)	(1,900)	(1,900)	(5,700)
Net Effect	550	Nil	(550)	NIL

 

WN 4 Calculation of Final Profit Share of Partners

Total Corrected Profit Available for Distribution = Profit - Interest on Capital + Interest on Drawings = 24,000 – 6,300 + 600 = ` 18,300

Corrected profti of Mohan,Vijay,Anil each =18,300×1/3=6,100