Question

Rajesh and Anu were partners in a firm sharing profits and losses in the ratio of 1:2. Their fixed capitals were \rupee 6,00,000 and \rupee 3,00,000 respectively. After the accounts for the year were prepared, it was noticed that interest on capital @ 12\% 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:

Adjust interest on capital retroactively if omitted, ensuring partner balances reflect the partnership deed.

Answer 1

Step 1: Calculate Interest on Capital: \[ \text{Interest on Capital for Rajesh} = \rupee 6,00,000 \times 12\% = \rupee 72,000 \] \[ \text{Interest on Capital for Anu} = \rupee 3,00,000 \times 12\% = \rupee 36,000 \] Step 2: Adjust Profits in the Profit-Sharing Ratio (1:2): Total interest on capital: \[ \rupee 72,000 + \rupee 36,000 = \rupee 1,08,000 \] Adjust profit allocation by deducting interest on capital: \[ \text{Rajesh’s Adjustment} = \rupee 72,000 - \frac{1}{3} \times \rupee 1,08,000 = \rupee 36,000 \] \[ \text{Anu’s Adjustment} = \rupee 36,000 - \frac{2}{3} \times \rupee 1,08,000 = \rupee 0 \] Journal Entry: \begin{center} \begin{tabular}{|c|c|c|c|} Date & Particulars & Debit (\rupee) & Credit (\rupee)
2023-03-31 & Rajesh’s Capital A/c & 36,000 &
& Anu’s Capital A/c & 36,000 &
& To Interest on Capital A/c & & 72,000
\end{tabular} \end{center}