T.S. Grewal Class 12 Chapter 1 Q.72 - Accounting for Partnership Firm Fundamentals

Question 72

On 31st March, 2018, the balances in the Capital Accounts of Abhir, Bobby and Vineet, after making adjustments for profits and drawings, were ₹8,00,000, ₹6,00,000 and ₹4,00,000 respectively. Subsequently, it was discovered that interest on capital and interest on drawings had been omitted. The partners were entitled to interest on capital @ 10% p.a. and were to be charged interest on drawings @ 6% p.a. The drawings during the year were: Abhir ₹20,000 drawn at the end of each month, Bobby ₹50,000 drawn at the beginning of every half year, and Vineet ₹1,00,000 withdrawn on 31st October, 2017. The net profit for the year ended 31st March, 2018 was ₹1,50,000. The profit-sharing ratio was 2 : 2 : 1. Pass the necessary adjusting entry. (CBSE 2019)

Solution

JOURNAL

Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
2018 Mar 31	Bobby’s Capital A/c    Dr.		18,660
	To Abhir’s Capital A/c			13,240
	To Vineet’s Capital A/c			5,420
	(Interest on capital and on drawings omitted, now adjusted)

Statement Showing Adjustment

Particulars	Abhir	Bobby	Vineet	Total
Interest on Capital @ 10% (opening 9,80,000 / 6,40,000 / 4,70,000)	98,000	64,000	47,000	2,09,000
Less: Interest on Drawings @ 6%	(6,600)	(4,500)	(2,500)	(13,600)
Add: Share of resulting loss (2 : 2 : 1 of 45,400)	(18,160)	(18,160)	(9,080)	(45,400)
Right Share	73,240	41,340	35,420	1,50,000
Less: Wrongly distributed (2 : 2 : 1)	(60,000)	(60,000)	(30,000)	(1,50,000)
Net Effect	+13,240 (Cr.)	–18,660 (Dr.)	+5,420 (Cr.)	Nil

Working Notes: Opening capital = closing + drawings – profit share. Interest on drawings: Abhir = ₹2,40,000 × 6% × 5.5/12 = ₹6,600; Bobby = ₹1,00,000 × 6% × 9/12 = ₹4,500; Vineet = ₹1,00,000 × 6% × 5/12 = ₹2,500. As interest on capital (₹2,09,000) exceeds the profit (₹1,50,000) plus interest on drawings (₹13,600), there is a loss of ₹45,400 to be shared.