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Question

P and Q were partners in a firm sharing profits and losses equally. Their fixed capitals were ₹ 2,00,000 and ₹ 3,00,000 respectively. The Partnership Deed provided for interest on capital @ 12% per annum. For the year ended 31st March, 2016, the profits of the firm were distributed without providing interest on capital.
Pass necessary adjustment entry to rectify the error.

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Solution

Adjusting Journal Entry
Journal
Date
Particulars
L.F.
Debit
Amount
(₹)
Credit
Amount
(₹)
P’s Current A/c
Dr.
6,000
To Q’s Current A/c
6,000
(Interest on capital omitted, now adjusted.)


Working Notes:

Statement Showing Adjustment

Particulars

P

Q

Total

Interest on Capital @ 12%

24,000

36,000

(60,000)

Less: Profits wrongly distributed to the extent of interest amount

(30,000)

(30,000)

60,000

Net Effect

(6,000)

6,000

NIL


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