Question

On 31st March, 2014, balances in the Capital Accounts of Eleen, Monu and Ahmad after making adjustments for profits and drawings were $Rs.1,60,000,Rs.1,20,000$ and $Rs.80,000$ respectively. Subsequently, it was discovered that the interest on capital and drawings had been omitted.
(i) The profit for the year ended 31st March, 2014 was $Rs.40,000$.
(ii) During the year, Eleen and Monu each withdrew a total sum of $Rs.24,000$ in equal instalments in the beginning of each month and Ahmad withdrew a total sum of $Rs.48,000$ in equal instalments at the end of each month.
(iii) The interest on drawings was to be charged @ $5\%$ p.a. and interest on capital was to be allowed @ $10\%$ p.a.
(iv) The profit-sharing ratio among the partners was $2:1:1$. Showing your working notes clearly, pass the necessary rectifying entry.

Answer 1

Rectification entry is as follows :-

Eleen's capital A/c Dr. 3850

To Monu's capital A/c 2950

To Ahmad's capital A/c 900

(Being adjustment entry passed)

Calculation of Opening Capital Eleen Monu Ahmad

Closing capital 1,60,000 1,20,000 80,000

Add:Drawings 24,000 24,000 48,000

Less:Profits credited (20,000) (10,000) (10000)

Opening Capital 1,64,000 1,34,000 1,18,000

Interest on Capital @10% 16,400 13,400 11,800

Calculation of Interest on Drawings Eleen Monu Ahmad

Interest on Drawings (24,000*5%*6.5/12) (24,000*5%*6.5/12) (48,000*5%*5.5/12)

= 650 650 =1100

Table Showing Adjustments To Be Made

Particulars	Eleen	Monu	Ahmad
Interest on capital	16,400	13,400	11,800
Interest on Drawings	(650)	(650)	(1100)
Profit to be credited	400	200	200
Profit wrongly credited	(20000)	(10000)	(10000)
Net Effect	(3850)	2950	900