Azad and Benny are equal partners. Their capitals are ₹ 40,000 and ₹ 80,000 respectively. After the accounts for the year had been prepared, it was noticed that interest @ 5% p.a. as provided in the Partnership Deed was not credited to their Capital Accounts before distribution of profits. It is decided to pass 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 × $\frac{5}{100}$ = ₹ 2,000

Benny = 80,000 × $\frac{5}{100}$ = ₹ 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 ×	$\frac{5}{100}$	= ₹ 2,000
Benny	=	80,000 ×	$\frac{5}{100}$	= ₹ 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)