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

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Solution

Interest on Capital

Azad =

40,000 ×

5

= Rs 2,000

100

Benny =

80,000 ×

5

= Rs 4,000

100

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

Particulars

L.F

Debit Amount

Rs

Credit Amount

Rs

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	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	Particulars		L.F	Debit Amount Rs	Credit Amount Rs

	Azad's Current A/c	Dr.		1,000
	To Benny's Current A/c				1,000
	(Adjustment of profit made)