Question

Mohan, Vijay and Anil are partners, the balances of their Capital Accounts being ₹ 30,000, ₹ 25,000 and ₹ 20,000 respectively. In arriving at these figures, the profits for the year ended 31st March, 2016, ₹ 24,000 had already been credited to partners in the proportion in which they shared profits. Their drawings were ₹ 5,000 (Mohan), ₹ 4,000 (Anil) during the year. Subsequently, the following omissions were noticed and it was decided to bring them into account:
(a) Interest on capital @ 10% p.a.
(b) Interest on drawings: Mohan ₹ 250, Vijay ₹ 200 and Anil ₹ 150.
Make necessary corrections through a Journal entry and show your workings clearly.

Answer 1

Journal
Particulars		L. F.	Debit Amount Rs	Credit Amount Rs
Anil’s Capital A/c	Dr.		550
To Mohan’s Capital A/c				550
(Interest on capital and interest on drawings was omitted, now adjusted)

Working Notes:

WN 1 Calculation of Capital at the beginning

Particulars	Mohan	Vijay	Anil	Total
Capital at the end	30,000	25,000	20,000	75,000
Add: Drawings	5,000	4,000	3,000	12,000
Less: Profit (1:1:1)	(8,000)	(8,000)	(8,000)	(24,000)
Capital in the beginning	27,000	21,000	15,000	63,000

WN 2 Calculation of Interest on Capital

WN 3

Statement Showing Adjustment
	Mohan	Vijay	Anil	Total
Interest on Capital to be credited	2,700	2,100	1,500	6,300
Less: Interest on Drawings	(250)	(200)	(150)	(600)
Right Distribution of Rs 5,700	2,450	1,900	1,350	5,700
Wrong Distribution of Rs 5,700 (1:1:1)	(1,900)	(1,900)	(1,900)	(5,700)
Net Effect	550	Nil	(550)	NIL

WN 4 Calculation of Final Profit Share of Partners

Total Corrected Profit Available for Distribution = Profit - Interest on Capital + Interest on Drawings = 24,000 - 6,300 + 600 = Rs 18,300