Azad and Benny are equal partners. Their capitals are ₹ 40,000 and ₹ 80,000 respectively. After the accounts for the year have been prepared, it is discovered that interest @ 5% p.a. as provided in the partnership agreement has not been credited to the Capital Accounts before distribution of profits. It is decided t make an adjustment entry in the beginning of the next year. Record the necessary journal entry.

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Solution

Interest on Capital

Azad = 40,000 × $\frac{5}{100}$ = Rs 2,000

Benny = 80,000 × $\frac{5}{100}$ = Rs 4,000

Adjustment of Profit

Azad

Benny

Total

Interest on Capital
2,000

4,000

=

6,000

Less: Wrong distribution of Profit Rs 6,000 (1: 1)
(3,000)

(3,000)

=

(6,000)

Adjusted Profit
(1,000)

(1,000)

=

NIL

Adjusting Journal Entry

Date

Particular

L.F

Debit Amount

(₹)

Credit Amount
(₹)

Azad's Current A/c

Dr.

1,000

To Benny's Current A/c

1,000

(Adjustment of profit made)

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Azad	=	40,000 ×	$\frac{5}{100}$	= Rs 2,000
Benny	=	80,000 ×	$\frac{5}{100}$	= Rs 4,000

	Azad	Benny		Total
Interest on Capital	2,000	4,000	=	6,000
Less: Wrong distribution of Profit Rs 6,000 (1: 1)	(3,000)	(3,000)	=	(6,000)
Adjusted Profit	(1,000)	(1,000)	=	NIL

Date	Particular		L.F	Debit Amount (₹)	Credit Amount (₹)
	Azad's Current A/c	Dr.		1,000
	To Benny's Current A/c				1,000
	(Adjustment of profit made)