$P$ and $Q$ were partners in a firm sharing profits equally. Their fixed capitals were $R s .1, 00, 000$ and $R s .50, 000$ respectively. The Partnership Deed provided for Interest on Capital at the rate of $10 %$ 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

Rectification Entry is as follows:-
Q's capital A/c Dr. 2500
To P's capital A/c 2500
(Being Adjustment entry passed)

Due to omission of interest on capital,profit is excessively credited to the extent of interest of capital. So, Profit to the extent of interest is to be reversed.
Table Showing Adjustments To Be Made
Particulars P Q
Interest on capital 10,000 5000
Excess Profits credited (7500) (7500)
Net Effect 2500 (2500)

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Particulars	P	Q
Interest on capital	10,000	5000
Excess Profits credited	(7500)	(7500)
Net Effect	2500	(2500)