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.

The Capital Accounts of A and B stood at ₹ 4,00,000 and ₹ 3,00,000

1.	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» n: JournalParticulars L.F. Debit RS. Credit Rs. Pand:L Adjustment A/c Dr. 29.200 To A's Capital A/c 16,400 To B's Capital A/c 12,800 (Being Interest on capital omitted, now provided) A's Capital A/c Dr. 900 B's Capital A/c Dr. 450 To Pand L Adjustment A/c 1,350 (Being Interest on drawings omitted, now charged) A's Capital A/c Dr. 16,710 B's Capital A/c Dr. 11,140 To PandL Adjustment A/c (29,200 - 1,350) 27,850 (Being Loss on adjustment is distributed between the partner) Partner's Current Account Dr. Cr. Particulars A Rs. B Rs. Particulars A Rs. B Rs. To B's Capital A/c 1,210 By Balance b/d 4,00,000 3,00,000To Balance c/d 3,98,790 3,01,210 By A's Capital A/c 1,210 4,00,000 3,01,210 4,00,000 3,01,210Working Notes : 1. Calculation of Capital as on April 01 2016 (Opening Capital Particulars A Rs. B Rs. Total Rs. 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 (1,20,000) (80.000) (2.00.000) Capital as on April 01,2016 (Opening) 3,28,000 2,56,000 5,84,000 2.Calculation of Interest on Capital Interest on A's Capital =3,28,000 x = 16,400 Interest on B's Capital =2,56,000 x = 12, 800 3. Calculation of Interest on Drawings Interest on A's Drawings = 48, 000 x x = 900 Interest on B's Drawings = 36, 000 x x =450 In Case only Adjustment Entry is to be passed Journal Particulars L.F. Debit Rs. Credit Rs. A's Capital A/c 1,210To 13's Capital A/c 1,210(Being amount of interest on Capital and interest on drawings adjusted) Working Notes : STATEMENT Showing Adjustment Particulars A Rs. B Rs. Total Rs. Interest on Capital (to be CREDITED) 16,400 12,800 29,200 Less : Interest on Drawings (900) (450) (1,350) Right distribution of 27,850 15,500 12,350 27,850 Less : WRONG Distribution of 27,850(3:2) (16,710) (11,140) (27,850) Net Effect (1,210) 1,210 NIL

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