Question

Mohan, Suhaan, and Adit were partners in a firm sharing profits and losses in the ratio \(3 : 2 : 1\). Their fixed capitals were \rupee2,00,000, \rupee1,00,000, and \rupee1,00,000 respectively. For the year ended 31st March 2023, interest on capital was credited to their accounts @8\% p.a. instead of 5\% p.a. Pass necessary adjusting journal entry.

Hint:

When interest on capital is credited at an incorrect rate, the difference is adjusted through the Profit and Loss Adjustment Account in the profit-sharing ratio.

Answer 1

Step 1: Calculate Correct and Excess Interest on Capital \[ \text{Interest on Capital (Correct Rate of 5\%):} \] \text{Mohan: } \rupee2,00,000 \times \frac{5}{100} = \rupee10,000, \quad \text{Suhaan: } \rupee1,00,000 \times \frac{5}{100} = \rupee5,000, \quad \text{Adit: } \rupee1,00,000 \times \frac{5}{100} = \rupee5,000. \[ \text{Total Correct Interest: } \rupee10,000 + \rupee5,000 + \rupee5,000 = \rupee20,000. \] \[ \text{Interest on Capital (Credited at 8\%):} \] \[ \text{Mohan: } \rupee2,00,000 \times \frac{8}{100} = \rupee16,000, \quad \text{Suhaan: } \rupee1,00,000 \times \frac{8}{100} = \rupee8,000, \quad \text{Adit: } \rupee1,00,000 \times \frac{8}{100} = \rupee8,000. \] \[ \text{Total Credited Interest: } \rupee16,000 + \rupee8,000 + \rupee8,000 = \rupee32,000. \] \[ \text{Excess Interest Credited: } \rupee32,000 - \rupee20,000 = \rupee12,000. \] \[ \text{Partner-wise Excess: } \text{Mohan: } \rupee6,000, \quad \text{Suhaan: } \rupee3,000, \quad \text{Adit: } \rupee3,000. \] Step 2: Adjust Excess Interest through Profit Sharing Ratio (\(3 : 2 : 1\)) \[ \text{Mohan’s Share of Adjustment: } \rupee6,000 \times \frac{3}{6} = \rupee3,000, \quad \text{Suhaan’s Share: } \rupee6,000 \times \frac{2}{6} = \rupee2,000, \quad \text{Adit’s Share: } \rupee6,000 \times \frac{1}{6} = \rupee1,000. \] Journal Entry: \begin{center} \begin{tabular}{|l|p{8cm}|c|r|} \hline Date & Particulars & L.F. & Amount (\rupee)
\hline 2025-01-14 & Mohan’s Capital A/c Dr. & & 3,000
\cline{2-4} & Suhaan’s Capital A/c Dr. & & 2,000
\cline{2-4} & Adit’s Capital A/c Dr. & & 1,000
\cline{2-4} & To Profit and Loss Adjustment A/c & & 6,000
\cline{2-4} & \multicolumn{3}{|l|}{(Being adjustment of excess interest on capital credited to partners)}
\hline \end{tabular} \end{center}