Question

The Capitals of A, B and C as on 31st March, 2018 amounted to ₹ 90,000, ₹ 3,30,000 and ₹ 6,60,000 respectively. The profits amounting ₹ 1,80,000 for the year 2017-18 were distributed in the ratio of 4 : 1 : 1 after allowing interest on Capital @ 10% p.a. During the year, each partner withdrew ₹ 3,60,000. The Partnership Deed was silent as to profit-sharing ratio but provided for interest on capital @ 12%.
Pass the necessary adjustment entry showing the working clearly.

Answer 1

In the books of A, B and C Journal
Date	Particulars			L.F.	Debit Amount (₹)	Credit Amount ​(₹)
	A’s Capital A/c		Dr.		66,600
	To B’s Capital A/c					30,000
	To C’s Capital A/c					36,600
	(Being adjustment made for interest on capital and profits)

Statement Showing Adjustment:

Particulars	A’s Capital A/c		B’s Capital A/c		C’s Capital A/c		Firm
	Dr. ( ₹)	Cr. ( ₹)	Dr. ( ₹)	Cr. ( ₹)	Dr. ( ₹)	Cr. ( ₹)	Dr. ( ₹)	Cr. ( ₹)
Profits wrongly credited in the ratio 4:1:1(Dr.)	1,20,000		30,000		30,000			1,80,000
Interest on Capital wrongly credited @10% p.a. (Dr.)	33,000		66,000		99,000			1,98,000
Interest on Capital to be provided @12% p.a. (Cr.)		39,600		79,200		1,18,800	2,37,600
Profits to be credited in the ratio 1:1:1 (Cr.)		46,800		46,800		46,800	1,40,400
Balance to be adjusted	66,600 (Dr.)		30,000 (Cr.)		36,600 (Cr.)		NIL

Note: Since, there is no provision of interest on drawings in the partnership deed so we will not provide it.

Calculation of Opening Capital of the Partners:

Particulars	A (₹)	B(₹)	C(₹)
Closing Capital of the partners	90,000	3,30,000	6,60,000
Add: Drawings made during the year	3,60,000	3,60,000	3,60,000
Less: Profits for the year	1,20,000	30,000	30,000
Opening Capital of the partners as on 1st April, 2017	3,30,000	6,60,000	9,90,000

Note: Interest on Capital is always computed on the opening capitals.