Question

Ram, Shyam and Mohan were partners in a firm sharing profits and losses in.the ratio of 2 : 1 : 2. The capitals were fixed at Rs. 3,00,000, 1 ,00,000, and 2,00,000. For the year ended 31st March, 2018, interest on capital was credited to them @ 9% instead of 10% p.a. The profit for the year before charging interest was Rs. 2,50,000. Show your working notes clearly and pass necessary adjustment entry.

Answer 1

As the partners capital are fixed,we have to pass entry for additional 1% through current Account.

The following entries should be passes:-

Profit and Loss Appropriation A/c Dr. 6000

To Interest on Capital A/c 6000

(Interest of additional 1% debited to P&L Appropriation Account)

Interest On capital A/c Dr. 6000

To Ram's Current A/c 3000

To Shyam's Current A/c 1000

To Mohan's Current A/c 2000

(Being interest credited to Current account of partners)

Profit and Loss Appropriation A/c Dr (Notes) 1,90,000

To Ram's Current A/c 76,000

To Shyam's Current A/c 38,000

To Mohan's Current A/c 76,000

(Being profits distributed to partners)

Notes: Profit before Interest = 2,50.000

Less:Interest on Capital = (60,000)

Profit after interest = 1,90,000