The Capital Accounts of A and B stood at Rs. 4,00,000 and Rs. 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-Rs. 12,000 drawn at the end of each quarter and B- Rs. 18,000 drawn at the end of each half year. The profit for the year as adjusted amounted to Rs. 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.

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Solution

Opening capital of partners= Closing capital+Drawings-Profit
A's Opening capital $= R s 4, 00, 000 + R s 36, 000 - R s 1, 20, 000 = R s 3, 16, 000$
B's Opening capital $= R s 3, 00, 000 + R s 36, 000 - R s 80, 000 = R s 2, 56, 000$
Past adjustment table
Particulars A B Firm
Interest on capital
Wrongly distributed profit taken back
Profit distributed rightly
Balance 15,800(Cr.)
1,20,000(Dr.)
1,02,840(Cr.)
1,360(Dr.) 12,800(Cr.)
80,000(Dr.)
68,560(Cr.)
1,360(Cr.) 28,600(Dr.)
2,00,000(Cr.)
1,74,100(Dr.)
Nil
Adjusted Partner's Capital a/c
Particulars(Dr.) A B Particulars(Cr.) A B
To drawings a/c
To balance c/d 36,000
3,98,640 36,000
3,01,360 By capital a/c
By interest on capital a/c
By p/l adjustment a/c 3,16,000
15,800
1,02,840 2,56,000
12,800
68,560

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Particulars	A	B	Firm
Interest on capital Wrongly distributed profit taken back Profit distributed rightly Balance	15,800(Cr.) 1,20,000(Dr.) 1,02,840(Cr.) 1,360(Dr.)	12,800(Cr.) 80,000(Dr.) 68,560(Cr.) 1,360(Cr.)	28,600(Dr.) 2,00,000(Cr.) 1,74,100(Dr.) Nil

Particulars(Dr.)	A	B	Particulars(Cr.)	A	B
To drawings a/c To balance c/d	36,000 3,98,640	36,000 3,01,360	By capital a/c By interest on capital a/c By p/l adjustment a/c	3,16,000 15,800 1,02,840	2,56,000 12,800 68,560