T.S. Grewal Class 12 Chapter 1 Q.74 - Accounting for Partnership Firm Fundamentals

Question 74

On 31st March, 2014, the balances in the Capital Accounts of Saroj, Mahinder and Umar, after making adjustments for profits and drawings, were ₹80,000, ₹60,000 and ₹40,000 respectively. Subsequently, it was discovered that interest on capital and on drawings had been omitted. (a) The profit for the year ended 31st March, 2014 was ₹80,000. (b) During the year, Saroj and Mahinder each withdrew ₹24,000 in equal instalments at the end of each month and Umar withdrew ₹36,000. (c) Interest on drawings was to be charged @ 5% p.a. and interest on capital allowed @ 10% p.a. (d) The profit-sharing ratio was 4 : 3 : 1. Showing your workings clearly, pass the necessary rectifying entry.

Solution

JOURNAL

Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
	Saroj’s Capital A/c    Dr.		2,350
	Mahinder’s Capital A/c    Dr.		1,300
	To Umar’s Capital A/c			3,650
	(Interest on capital and on drawings omitted, now adjusted)

Statement Showing Adjustment

Particulars	Saroj	Mahinder	Umar	Total
Interest on Capital @ 10% (opening 64,000 / 54,000 / 66,000)	6,400	5,400	6,600	18,400
Less: Interest on Drawings @ 5%	(550)	(550)	(900)	(2,000)
Add: Share of correct profit (4 : 3 : 1 of 63,600)	31,800	23,850	7,950	63,600
Right Share	37,650	28,700	13,650	80,000
Less: Wrongly distributed (4 : 3 : 1)	(40,000)	(30,000)	(10,000)	(80,000)
Net Effect	–2,350 (Dr.)	–1,300 (Dr.)	+3,650 (Cr.)	Nil