Question

Atul and Gita were partners in a firm sharing profits and losses in the ratio of 3:2. Their fixed capitals were \rupee4,00,000 and \rupee2,00,000, respectively. After the accounts for the year were prepared, it was noticed that interest on capital @ 6\% p.a., as provided in the partnership deed, was not credited to the capital accounts of partners before distribution of profits. Pass the necessary adjusting Journal Entry. Show your workings clearly.

Hint:

When adjustments for interest on capital are required after accounts are prepared, debit the Profit and Loss Appropriation Account and credit the respective partners' capital accounts.

Answer 1

1. Calculation of Interest on Capital: \[ \text{Atul’s Interest on Capital} = \rupee4,00,000 \times 6\% = \rupee24,000. \] \[ \text{Gita’s Interest on Capital} = \rupee2,00,000 \times 6\% = \rupee12,000. \] 2. Adjusting Total Interest: \[ \text{Total Interest on Capital} = \rupee24,000 + \rupee12,000 = \rupee36,000. \] % Journal Entry \begin{center} \begin{tabular}{|p{3cm}|p{8cm}|p{2.5cm}|p{2.5cm}|} Date & Particulars & Debit (\rupee) & Credit (\rupee)
31-Mar-2023 & Profit and Loss Appropriation A/c & 36,000 &
& {0.5cm} To Atul’s Capital A/c & & 24,000
& {0.5cm} To Gita’s Capital A/c & & 12,000
& (Adjustment of interest on capital as per the partnership deed) & &
\end{tabular} \end{center}