Given data:

• P, Q and R are partners with fixed capitals of RS 5,00,000, Rs 4,00,000 and Rs 3,00,000 RESPECTIVELY, sharing profits and losses equally.
• Instead of charging interest on capital at 9%, it was charged at 7%.

Objective: To rectify the error and pa‎ss the necessary entry.

Answer:

Calculation of interest on capitals [WRONG amount]:

Interest on capital = (Capital × Rate) ÷ 100

For P:

• Interest on capital = (Rs 5,00,000 × 7) ÷ 100 = Rs 35,000

For Q:

• Interest on capital = (Rs 4,00,000 × 7) ÷ 100 = Rs 28,000

For R:

• Interest on capital = (Rs 3,00,000 × 7) ÷ 100 = Rs 21,000

Calculation of interest on capitals [right amount]:

Interest on capital = (Capital × Rate) ÷ 100

For P:

• Interest on capital = (Rs 5,00,000 × 9) ÷ 100 = Rs 45,000

For Q:

• Interest on capital = (Rs 4,00,000 × 9) ÷ 100 = Rs 36,000

For R:

• Interest on capital = (Rs 3,00,000 × 9) ÷ 100 = Rs 27,000

Calculation of loss:

To calculate the profit/loss, observe which side of the firm has a higher amount and subtract the ONE with the LESSER amount from it. If the resultant value is on the debit side, it is profit. Else, loss.

Cr = Rs 84,000

Dr = Rs 1,08,000

Since the credit side is less, the resultant value of their difference will appear on the credit side, i.e., loss.

Loss = Rs 1,08,000 - Rs 84,000 = Rs 24,000

Calculation of loss shares:

Since the losses are shared equally, they must be distributed accordingly.

For P:

• Loss share = Rs 24,000 × 1/3 = Rs  8,000

For Q:

• Loss share = Rs 24,000 × 1/3 = Rs 8,000

For R:

• Loss share = Rs 24,000 × 1/3 = Rs 8,000

Rectifying entry:

R's current account ... Dr - Rs 2,000

• To P's current account - Rs 2,000