Question

On 31\textsuperscript{st March, 2023, the capitals of Raghav and Diya stood at ₹ 4,00,000 and ₹ 3,00,000 respectively, after the necessary adjustment in respect of drawings and net profit. Subsequently, it was discovered that interest on capital @ 10\% p.a. had been omitted. The net profit for the year ended 31\textsuperscript{st} March, 2023 amounted to ₹ 1,00,000. During the year ended 31\textsuperscript{st} March, 2023, Raghav’s drawings were ₹ 2,000 drawn at the beginning of each month, while Diya’s drawings were ₹ 3,000 drawn at the beginning of each quarter. Pass the necessary adjustment entry.}

Hint:

While adjusting for omissions, calculate interest on capital and drawings first, then distribute the adjusted net profit based on the profit-sharing ratio.

Answer 1

1. Interest on Capital: - Raghav’s Interest on Capital: \[ \text{Interest} = ₹ 4,00,000 \times \frac{10}{100} = ₹ 40,000. \] - Diya’s Interest on Capital: \[ \text{Interest} = ₹ 3,00,000 \times \frac{10}{100} = ₹ 30,000. \] 2. Interest on Drawings: - Raghav’s Drawings: \[ \text{Total Drawings} = ₹ 2,000 \times 12 = ₹ 24,000. \] - Average Period = \(\frac{13}{24}\) years: \[ \text{Interest on Drawings} = ₹ 24,000 \times \frac{10}{100} \times \frac{13}{24} = ₹ 1,300. \] - Diya’s Drawings: \[ \text{Total Drawings} = ₹ 3,000 \times 4 = ₹ 12,000. \] - Average Period = \(\frac{7.5}{12}\) years: \[ \text{Interest on Drawings} = ₹ 12,000 \times \frac{10}{100} \times \frac{7.5}{12} = ₹ 750. \] 3. Net Profit Distribution: - Adjusted Net Profit: \[ \text{Net Profit} = ₹ 1,00,000 - (₹ 40,000 + ₹ 30,000) + (₹ 1,300 + ₹ 750) = ₹ 32,050. \] - Profit Sharing Ratio (Assumed Equal): \[ \text{Raghav’s Share} = ₹ 16,025, \quad \text{Diya’s Share} = ₹ 16,025. \] Journal Entry: \[ \begin{array}{|l|l|r|r|} \hline Date & Particulars & Dr (₹) & Cr (₹)
\hline \text{2023} & & &
\text{March 31} & \text{Interest on Capital A/c} & 70,000 &
& \text{To Raghav’s Capital A/c} & & 40,000
& \text{To Diya’s Capital A/c} & & 30,000
& \multicolumn{3}{l|}{\textit{(Interest on capital credited to partners’ accounts)}}
\hline \text{March 31} & \text{Profit and Loss A/c} & 32,050 &
& \text{To Raghav’s Capital A/c} & & 16,025
& \text{To Diya’s Capital A/c} & & 16,025
& \multicolumn{3}{l|}{\textit{(Distribution of adjusted net profit among partners)}}
\hline \text{March 31} & \text{Raghav’s Capital A/c} & 1,300 &
& \text{Diya’s Capital A/c} & 750 &
& \text{To Interest on Drawings A/c} & & 2,050
& \multicolumn{3}{l|}{\textit{(Interest on drawings charged to partners)}}
\hline \end{array} \]