Question

Sun and Moon were partners in a firm sharing profits and losses equally. Their fixed capitals were \(₹5,00,000\) each. After the accounts for the year ended 31stMarch, 2024 were prepared, it was discovered that interest on capital @ 10% p.a. was not credited to the partners’ current accounts as provided in the partnership deed.
The rectifying adjustment entry for the same will be :

Particulars	Debit Amount (₹)	Credit Amount (₹)
(A) No Entry
(B) Sun’s Current A/c Dr.      To Moon’s Current A/c	50,000	50,000
(C) Moon’s Current A/c Dr.      To Sun’s Current A/c	50,000	50,000
(D) Sun’s Current A/c Dr. Moon’s Current A/c Dr.      To Profit and Loss Appropriation A/c	50,000 50,000	1,00,000

Hint:

Always pass a rectifying entry to adjust omitted interest on capital. It affects the Profit and Loss Appropriation Account.

Answer 1

Interest on capital @ 10% on \(₹5,00,000\) each = \(₹50,000\) per partner.
Since it was omitted, both partners should receive interest. The missing interest is an expense for the firm and should be transferred to the Profit and Loss Appropriation Account. Therefore, we debit the partners’ current accounts and credit the Profit and Loss Appropriation Account.
Entry:
Sun’s Current A/c Dr. \(₹50,000\)
Moon’s Current A/c Dr. \(₹50,000\)
To Profit and Loss Appropriation A/c \(₹1,00,000\)
Hence, option (D) is correct.