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Question

On 31st March, 2014, the balances in the Capital Accounts of Saroj, Mahinder and Umar after making adjustments for profits and drawings, etc., were Rs. 80;000,Rs. 60,000 and Rs. 40,000 respectively. Subsequently it was discovered that the Interest on capital and drawings has been omitted. (a) The profit for the year ended 31st March, 2014 was Rs. 80,000;
(b) During the year Saroj and Mahinder each withdraw a sum of Rs. 24,000 in equal instalments in the end of each month and Umar withdrew Rs. 36,000.
(c) The interest on drawings was to be charged @ 5% pa. and interest on capital was to be allowed @ 10% p.a.
(d) The profit-sharing ratio among partners was 4 : 3 :1.
Showing your workings clearly, pass the necessary rectifying entry.

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Solution

Calculation of opening capital
Saroj Mahinder Umar
Closing capital 80000 60000 40000
Add:drawings 24000 24000 36000
Less:profits (40000) (30000) (10000)
Opening capital 64000 54000 66000
Interest on capital@10% 6400 5400 6600
Interest on drawings@5%
(Total drawings*5%*5.5/12) 550 550 900

Notes: As date of drawings for Umar is not given we have assumed an average of 6 months.
36000*5%*6/12= 900

The adjusting entry is:-
Saroj's Capital A/c Dr. 2350
Mahinder's Capital A/c Dr. 1300
To Umar's Capital A/c 3650
(Being adjustment entry passed)

Table showing adjustments
Particulars Saroj Mahinder Umar
Interest on capital6400 5400 6600
Interest on drawings (550) (550) (900)
Profits to be distributed 31800 23850 7950
Total 37650 28700 13650
Less:profits wrongly distributed (40000) (30000) (10000)
Adjustments (2350) (1300) 3650

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