12th | Accounting for Partnership Firms – Fundamentals| Question No. 71 To 75 | Ts Grewal Solution 2024-2025

On 31st March, 2024, 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, 2024 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 ( `)
2023 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 1Calculation of Capital at the beginning (as on April 01, 2023)

 

Particulars	P	Q	R
Capital as on March 31, 2023(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, 2023 (Opening)	20,000	17,500	14,500

WN 2Calculation 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, 2024,  ` 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 ( `)
2023 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 1Calculation 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 2Calculation 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 4Calculation 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 profit of Mohan, Vijay, Anil each =18,300×1/3=6,100

 

Mudit, Sudhir and Uday are partners in a firm sharing profits in the ratio of 3 : 1 : 1. Their fixed capital balances are  ` 4,00,000,  ` 1,60,000 and  ` 1,20,000 respectively. Net profit for the year ended 31st March, 2018 distributed amongst the partners was  ` 1,00,000, without taking into account the following adjustments:
(a) Interest on capitals @ 2.5% p.a.;
(b) Salary to Mudit ` 18,000 p.a. and commission to Uday ` 12,000.
(c) Mudit was allowed a commission of 6% of divisible profit after charging such commission.
Pass a rectifying Journal entry in the books of the firm. Show workings clearly.

(CBSE Sample paper 2019)

In the books of Mudit, Sudhir and Uday Journal
Date	Particulars			L.F.	Debit ( `)	Credit ( `)
2023
March 31	Sudhir’s Current A/c		Dr.		6,000
	To Mudit’s Current A/c					1,000
	To Uday’s Current A/c					5,000
	(Being adjustment entry passed for rectification of errors)

Working Notes:  

Table Showing Adjustment
Particulars	Mudit’s Current A/c		Sudhir’s Current A/c		Uday’s Current A/c		Firm
	Dr. (`)	Cr. (`)	Dr. (`)	Cr. (`)	Dr. (`)	Cr. (`)	Dr. (`)	Cr. (`)
Profits wrongly Distributed (Dr.)	60,000		20,000		20,000			1,00,000
Interest on Capital to be
Provided (Cr.)		10,000		4,000		3,000	17,000
Salary to be provided (Cr.)		18,000					18,000
Commission to be provided (Cr.)		3,000				12,000	15,000
Profit correctly distributed (Cr.)		30,000		10,000		10,000	50,000
Balance to be adjusted	1,000(Cr.)		6,000(Dr.)		5,000(Cr.)		NIL

 

Divisible Profits	=	Profits before appropriation – (Interest on Capital + Salary + Uday’s Commission)
	=	` 1,00,000 – (17,000 + 18,000 + 12,000) =  ` 53,000
Mudit’s Commission	=	(Divisible Profit × Rate/ 100 + Rate)
	=	` (53,000 × 6/106) =  ` 3,000

Piya and Bina are partners in a firm sharing profits and losses in the ratio of 3 : 2. Following was the Balance Sheet of the firm as on 31st March, 2016:
 

Liabilities		`	Assets	`
Capitals:			Sundry Assets	1,20,000
Piya	80,000
Bina	40,000	1,20,000
		1,20,000		1,20,000

The profits  ` 30,000 for the year ended 31st March, 2016 were divided between the partners without allowing interest on capital @ 12% p.a. salary to Piya @  ` 1,000 per month. During the year Piyawithdrew  ` 8,000 and Bina withdrew  ` 4,000. Showing your working notes clearly, pass the necessary rectifying entry.

Journal
Particular		L.F.	Debit (`)	Credit (`)
Bina’s Capital A/c	Dr.		5,856
To Piya’s Capital A/c				5,856
(Adjustment made)

 

Particular	Piya	Bina	Total
Interest on Capital @ 12% p.a.	8,400	3,840	(12,240)
Salary	12,000	–	(12,000)
Profit (30,000 – 12,240 –12,000)	3,456	2,304	5,760
Right Share	23,856	6,144	(30,000)
Wrong Share	(18,000)	(12,000)	30,000
Net Effect	5,856 (Cr.)	5,856 (Dr.)	Nil

 

Working Notes:

 

Particular	Piya	Bina
Closing Capitals	80,000	40,000
Add: Drawings	8,000	4,000
Less: Profit Share	18,000	12,000
Opening Capital	70,000	32,000

 

Naveen, Qadir and Rajesh were partners doing an electronic goods business in Uttarakhand. After the accounts of partnership were drawn up and closed, it was discovered that interest on capital has been allowed to partners @ 6% p.a. for the years ending 31st March,2017 and 2018,although there is no provision for interest on capital in the Partnership Deed. On the other hand, Naveen and Qadir were entitled to a salary of `3, 500 and `4,000 per quarter respectively, which has not been taken into consideration. Their fixed capitals were `4,00,000, `3,60,000 and `2,40,000 respectively. During the last two years they had shared the profits and losses as follows:

Year Ended	Ratio
31st March,2017	3:2:1
31stMarch,2018	5:3:2

Pass necessary adjusting entry for the above adjustments in the books of the firm on 1st April, 2018. Show your workings clearly. (CBSE 2019)