Question

Mannu and Shristhi are partners in a firm sharing profit in the ratio of 3:2. Following is the balance sheet of the firm as on March 31,2006.

Balance Sheet

as on March 31, 2006

$\begin{array}{cccccc}\text{Liabilities}& & \text{Amt. (Rs)}& \text{Assets}& & \text{Amt. (Rs)}\\ \text{Mannu's Capital}& 30,000& & \text{Drawings}& & \\ \text{Shristhi's Capital}& \underset{–}{10,000}& 40,000& \text{Mannu}& 4,000& \\ & & & \text{Shristhi}& \underset{–}{2,000}& 5,000\\ & & & \text{Other Assets}& & 34,000\\ & & \underset{–}{\overline{\underset{–}{40,000}}}& & & \underset{–}{\overline{\underset{–}{40,000}}}\end{array}$

Profit for the year ended March 31, 2006 was Rs 5,000 which was divided in the agreed ratio, but interest @5% pa on capital and @ 6% pa on drawings was inadvertently enquired. Adjust interest on drawings on an average basis for 6 months. Give the adjustment entry.

Answer 1

Calculation of Opening Capital

$\begin{array}{ccc}\text{Particulars}& \text{Mannu}& \text{Shrishti}\\ \text{Capital as on 31 March, 2006}& 30,000& 10,000\\ \text{(-) Profit Credited}& (3,000)& (2,000)\\ \text{Capital as on 1 April, 2005}& \underset{–}{\underset{–}{\overline{27,000}}}& \underset{–}{\underset{–}{\overline{8,000}}}\end{array}$

Note: Drawings were not taken while calculating opening capital as it is shown in balances sheet which means it was not taken in capital account.

Adjustment of Profits

$\begin{array}{cccc}\text{Particulars}& & \text{Mannu}& \text{Shrishthi}\\ \text{Amount Already Credited}& & 3,000& 2,000\\ & \text{A}& 3,000& 2,000\\ \text{Amount to be Credited}& & & \\ \text{(+) Interest on Capital}& & 1,350& 400\\ \text{(-) Interest on Drawings}& & \left(120\right)& \left(60\right)\\ \text{Profit Share (5000 + 180 - 1750)}& & \underset{–}{2,058}& \underset{–}{1,372}\\ & \text{B}& \underset{–}{3,288}& \underset{–}{1,712}\\ \text{Difference (B-A)}& & 288& \left(288\right)\\ & & \text{Cr}& \text{Dr}\end{array}$

Journal Entry

$\begin{array}{ccccccc}\text{Date}& \text{Particulars}& & \text{LF}& \text{Amt. (Dr)}& & \text{Amt. (Cr)}\\ & \text{Shrishti's Capital A/c}& \text{Dr}& & 288& & \\ & \text{To Mannu's Capital A/c}& & & & & 288\\ & \text{(Being profit adjusted among all partners)}& & & & & \end{array}$