Question

Anvi, Vani, and Karan were partners in a firm sharing profits in the ratio of 2:2:1. Their fixed capitals were |4,00,000, |5,00,000, and |6,00,000 respectively. For the year ended 31st March, 2023, interest on capital was credited to the part- ners’ capital accounts @ 6% p.a. instead of 10% p.a. Pass the necessary adjusting journal entry.

Hint:

In such adjustments, the difference in interest on capital is charged to the Profit and Loss Adjustment Account and credited to the partners' capital accounts.

Answer 1

The correct interest on capital should be calculated at 10\% p.a., but it was credited at 6\% p.a. 

The difference needs to be adjusted. \[ {Difference in Interest on Capital} = {Fixed Capital} \times (10\% - 6\%) \] \[ {Anvi's Interest Adjustment} = rupee 4,00,000 \times 4\% = rupee 16,000 \] \[ {Vani's Interest Adjustment} = rupee 5,00,000 \times 4\% = rupee 20,000 \] \[ {Karan's Interest Adjustment} = rupee 6,00,000 \times 4\% = rupee 24,000 \] 

Adjusting journal entry: 

Narration: Adjustment for under-crediting of interest on capital for Anvi, Vani, and Karan.