Question

Profits earned by a partnership firm for the year ended 31st March, 2017 were distributed equal between the partners Pankaj and Anu without allowing interest on capital. Interest due on capital was - Pankaj: 3,000 and Anu: 1,000. Pass necessary adjustment entry.

Answer 1

As the profits were distributed between Pankaj and Anu without allowing interest on capital, we have to first reverse the profits that were distributed by passing the entry:-

Pankaj's Capital A/c Dr.

Anu's Capital A/c Dr.

To Profit and loss appropriation A/c.

(Being profit distributed earlier reversed)

Now we will pass the entry for allowing interest on capital to partners.

Profit and loss appropriation A/c Dr. 4,000

To Pankaj's Capital A/c 3,000

To Anu's Capital A/c 1,000

(Being interest on capital being credited to partner's capital a/c)

Now, we will distribute the remaining profit among the partners.