Question

The capitals of $X,Y$ and $Z$ as on 31st March, 2018 amounted to $Rs.1,50,000;Rs.5,50,000$ and $Rs.1,10,000$ respectively. The profits amounting to $Rs.3,00,000$ 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 $Rs.50,000$ per month in the beginning of each month. The Partnership Deed was silent as to profit sharing ratio and interest on drawings but provided for interest on capital @ $12\%$ p.a. Showing your working neatly, pass the necessary adjustment entry to rectify the above error.

Answer 1

Calculation of Opening Capital

X Y Z

Closing Capital 1,50,000 5,50,000 11,00,000

Add: Drawings 6,00,000 6,00,000 6,00,000

(50,000*12)

Less : profits credited(4:1:1) (2,00,000) (50,000) (50,000)

Opening capital with Interest 5,50,000 11,00,000 16,50,000

Less:Interest op.cap*10/110 (50.000) (1,00,000) (1,50,000)

Opening Capital 5,00,000 10,00,000 15,00,000

Rectifying Entry is:-

X's capital A/c Dr. 1,10,000

To Y's capital A/c 50,000

To Z's capital A/c 60,000

(being adjustment entry passed)

Table Showing Adjustments To be Made

Particulars	X	Y	Z
Interest on capital @12%	60,000	1,20,000	1,80,000
Share of profit	80,000	80,000	80,000
Total	1,40,000	2,00,000	2,60,000
Less:-Interest wrongly credited @ 10%	(50,000)	(1,00,000)	(1,50,000)
Less:-profits wrongly credited	(2,00,000)	(50,000)	(50,000)
Net Effect	(1,10,000)	50,000	60,000