On 31st March, 2018, after the closing of the accounts, the capital Accounts of P, Q and R stood in the books of the firm at Rs.40,000, Rs. 30,000 and Rs. 20,000 respectively. Subsequently, it was discovered that interest on capital @ 5% had been omitted. Profit for the year ended 31st March, 2018 amounted to Rs. 60,000 and the partners drawings had been P- Rs. 10,000, Q- Rs. 7,500 and R - Rs. 4,500. The profit-sharing ratio of P, Q and R is 3 : 2 :1. Give necessary adjustment entry.

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Solution

Calculation of capital at the beginning
P Q R
Capital at the end 40000 30000 20000
Add;- drawings 10000 7500 4500
Less;profits (30000) (20000) (10000)
Capital at the beginning 20000 17500 14500
Interest on capital @ 5% 1000 875 725

The following adjustment entry needs to be passed:-
P's capital A/c Dr 1300
Q's capital A/c Dr. 867
R's capital A/c Dr 433
To Profit and loss Appropriation A/c 2600
(Profits to be reversed)

Table showing Adjustments to be made
Partners Profits to be written back Profits to be distributed
(60000-2600) Adjustements
P -30000 28700 -1300
Q -20000 19133 -867
R -10000 9567 -433

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Partners	Profits to be written back	Profits to be distributed (60000-2600)	Adjustements
P	-30000	28700	-1300
Q	-20000	19133	-867
R	-10000	9567	-433