Ram and Mohan are equal partners. Their capitals are ₹ 4,000 and ₹ 8,000 respectively. After the accounts for the year are prepared it is discovered that interest @ 5% p.a. on capital as provided in the Partnership Deed has not been credited to the Capital Accounts before distribution of profits. It is decided to make an adjusting entry in the beginning of the next year.
Give necessary adjustment entry.

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Solution

Journal

Date

Particulars

L.F.

Debit Amount

Rs

Credit Amount

Rs

Ram’s Capital A/c

Dr.

100

To Mohan’s Capital A/c

100

(Interest on Capital was omitted, now adjusted)

Working Notes:

WN 1 Calculation of Interest on Capital

Particulars

Ram

Mohan

Total

Interest on Capital to be credited

200

400

600

For sharing above Loss (1:1)

(300)

(300)

(600)

Net Effect

(100)

(100)

Nil

(Dr.)

(Cr.)

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Journal
Date	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
	Ram’s Capital A/c	Dr.		100
	To Mohan’s Capital A/c				100
	(Interest on Capital was omitted, now adjusted)

Particulars	Ram	Mohan	Total
Interest on Capital to be credited	200	400	600
For sharing above Loss (1:1)	(300)	(300)	(600)
Net Effect	(100)	(100)	Nil
Net Effect	(Dr.)	(Cr.)	Nil