Question

A and B are partners in a firm sharing profits and losses in the ratio of 3:2. The following was the Balance Sheet of the firm as on 31.3.2010

$\begin{array}{cccc}\text{Capital and Liabilities}& \text{Rs}& \text{Assets}& \text{Rs}\\ \text{Capitals:}A& 60,000& \text{Sundry Assets}& 80,000\\ B& 20,000& & \\ & \underset{–}{\overline{80,000}}& & \underset{–}{\overline{80,000}}\end{array}$

The profit Rs 30,000 for the year ended 31.3.2010 were divided between the partners without allowing interest on capital at 12% p.a. and salary to A at Rs 1,000 per month, During the year A withdrew Rs 10,000 and B Rs 20,000.

Pass the necessary adjustment journal entry and show your working clearly.

Answer 1

Interest on Capital should always be calculated on the capitals at the beginning of the year. But in this question, capitals at the end of the year i.e. on 31st March 2010 have been given. Hence, capitals at the beginning will be calculated:

$\begin{array}{ccc}\text{Particulars}& \text{A(Rs)}& \text{B (Rs)}\\ \text{Closing Capitals (as on 31.3.2010)}& 60,000& 20,000\\ \text{Less: Share of Profit (which has already been added in capital) (3:2)}& \underset{–}{18,000}& \underset{–}{12,000}\\ & 42,000& 8,000\\ \text{Add: Drawings}& \underset{–}{10,000}& \underset{–}{20,000}\\ \text{Opening Capitals (as on 1.4.2009)}& \underset{–}{52,000}& \underset{–}{28,000}\end{array}$

TABLE SHOWING ADJUSTMENT

$\begin{array}{cccc}\text{Particulars}& \text{A Rs}& \text{B Rs}& \text{Total Rs}\\ \text{Interest on Opening Capitals @ 12 \%}& 6,240& 3,360& 9,600\\ \text{Salary to A}& \underset{–}{12,000}& \underset{–}{-}& \underset{–}{12,000}\\ \text{Balance}(Cr.)& 18,240& 3,360& 21,600\\ \text{Division of Firm's loss of Rs 21,600 in the}& & & \\ \text{ratio of 3:2}(Dr.)& \underset{–}{12,960}& \underset{–}{8,640}& \underset{–}{}\\ & (Cr.)5,280& (Dr.)5,280& \end{array}$

Adjusting Entry:-

$\begin{array}{ccccc}\text{Date}& \text{Particulars}& \text{L.F}& \text{Dr. Rs}& \text{Cr. Rs}\\ 2010& & & & \\ \text{March 31}& \text{B's Capital A/c}Dr.& & 5,280& \\ & \text{To A's Capital A/c}& & & 5,280\\ & \text{(Interest on Capitals and salary to A not charged,}& & & \\ & \text{now adjusted)}& & & \end{array}$