Question

The Capital Accounts of A and B stood at ₹ 4,00,000 and ₹ 3,00,000 respectively after necessary adjustments in respect of the drawings and the net profit for the year ended 31st March, 2018. It was subsequently discovered that 5% p.a. interest on capital and also drawings were not taken into account in arriving at the distributable profit. The drawings of the partners had been: A–₹ 12,000 drawn at the end of each quarter and B–₹ 18,000 drawn at the end of each half year.
The profit for the year as adjusted amounted to ₹ 2,00,000. The partners share profits in the ratio of 3 : 2. You are required to pass Journal entries and show adjusted Capital Accounts of the partners.

Answer 1

Journal
Date	Particulars		L. F.	Debit Amount Rs	Credit Amount Rs
	P&L Adjustment A/c	Dr.		29,200
	To A's Capital A/c				16,400
	To B's Capital A/c				12,800
	(Interest on capital omitted, now provided)
	A's Capital A/c	Dr.		900
	B's Capital A/c	Dr.		450
	To P&L Adjustment A/c				1,350
	(Interest on drawings omitted, now charged)
	A's Capital A/c	Dr.		16,710
	B's Capital A/c	Dr.		11,140
	To P&L Adjustment A/c (29,200 - 1,350)				27,850
	(Loss on adjustment is distributed between the partner)

Partners’ Capital Accounts
Dr.				Cr.
Particulars	A	B	Particulars		A	B
B’s Capital A/c	1,210		Balance b/d		4,00,000	3,00,000
			A’s Capital A/c		-	1,210
Balance c/d	3,98,790	3,01,210
	4,00,000	3,01,210			4,00,000	3,01,210

Working Notes:

WN 1 Calculation of Capital as on April 01, 2017 (Opening Capital)

Particulars	A	B	Total
Capital as on March 31, 2017 (Closing)	4,00,000	3,00,000	7,00,000
Add: Drawings	48,000	36,000	84,000
Less: Profit (3:2)	(1,20,000)	(80,000)	(2,00,000)
Capital as on April 01, 2016 (Opening)	3,28,000	2,56,000	5,84,000

WN 2 Calculation on Interest on Capital

WN 3 Calculation of Interest on Drawings

If instead of all entries, adjustment entry is asked in the question

Journal
Date	Particulars		L. F.	Debit Amount Rs	Credit Amount Rs
	A’s Capital A/c	Dr.		1,210
	To B’s Capital A/c				1,210
	(Amount of interest on Capital and interest on drawings adjusted)

Working Notes: Statement Showing Adjustment

Statement Showing Adjustment
Particulars	A	B	Total
Interest on Capital (to be credited)	16,400	12,800	29,200
Less: Interest on Drawings	(900)	(450)	(1,350)
Right distribution of Rs 27,850	15,500	12,350	27,850
Less: Wrong Distribution of Rs 27,850 (3:2)	(16,710)	(11,140)	(27,850)
Net Effect	(1,210)	1,210	NIL