Question 74 Chapter 2 of +2-A
74. 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 2019. It was subsequently noticed 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 solution of Question 74 Chapter 2 of +2-A:
| Date | Particulars |
L.F. | Debit | Credit | |
| A’s Capital A/c | Dr | 1,210 | |||
| To B’s Capital A/c | 1,210 | ||||
| (Being adjustment made) | |||||
| Particulars |
A | B | Particulars |
A | B |
| To B’s Capital A/c | 1,210 | – | By Balance B/d | 4,00,000 | 3,00,000 |
| By A’s Capital A/c *1 | – | 1,210 | |||
| To Balance c/d | 3,98,790 | 3,01,210 | |||
| 4,00,000 | 3,01,210 | 4,00,000 | 3,01,210 |
Working Note: –
| Statement Showing Adjustment of Profit required |
||
| Particulars | Amount of A’s Capital |
Amount of B’s Capital |
| Capital at the end | 4,00,000 | 3,00,000 |
| Less: Profit already Distributed (3:2) |
1,20,000 | 80,000 |
| Add: Drawings During the year | 48,000 | 36,000 |
| Capital at the beginning | 3,28,000 | 2,56,000 |
| Statement Showing Adjustment of Profit required |
|||
| Particulars | A | B | Total |
| Amount of Interest on Capital @5% p.a.*2 | 16,400 | 12,800 | 29,200 |
| Less: Amount of Interest on Drawing @5% p.a.*3 & *4 | – 900 | – 450 | – 1,350 |
| Actual total amount due – will be distributed as | 15,500 | 12,350 | 27,850 |
| Less: – Wrongly total amount distributed in the profit sharing ration i.e. 3: 2 | – 16,710 | – 11,140 | 22,760 |
| – 1,210 | 1,210 | – | |
|
A get extra so we have to debit his capital a/c with difference amount |
B get less amount, so we have to credit his capital a/c with difference amount
|
||
*2 Calculation of Actual Amount of Interest on A’s, B’s, Capital
Interest on Capital = Opening Capital X Rate of Interest
| Interest on A’s Capital | = | 3,28,000 | X | 5 |
| 100 |
Interest on A’s Capital = 16,400/-
| Interest on B’s Capital | = | 2,56,000 | X | 5 |
| 100 |
Interest on B’s Capital = 12,800/-
*3 Calculation of interest on A’s Drawings
If partners withdrawal the same amount of drawing on a regular basis then we can calculate the interest on drawing with help of following formula: –
Interest on Drawing = Total Drawing X Rate of Interest X Period/12 Months
Rate of Interest = 5%
Period = the period/time will be calculated with the help of following formula: –
| Period | = | Time left after 1st withdrawal +Time left after Last withdrawal | ||
| 2 | ||||
Withdrawal at the end of each quarter = 12,000
It means 1st withdrawal has made on 30/06/2019
So, Time left from 30/06/2019 to 31/03/2020
are 9 Months
And last withdrawal has made on 31/03/2020
So, Time left from 31/03/2020 to 31/03/2020
are 0 Month and 0 day
Now, put this time period in the formula
| Period | = | 9 | + | 0 |
| 2 | ||||
| Period | = | 9 | ||
| 2 | ||||
Period = 4.5
| Total Drawing | = | 12,000 x 4 | = | 48,000 | Multiplied by 4 because the number of the quarter in the year is 4. |
| Interest on Drawing | = | 48,000 | X | 5 | X | 4.5 |
| 100 | 12 |
Interest on Drawing = 900/-
*4 Calculation of interest on B’s Drawings
If partners withdrawal the same amount of drawing on a regular basis then we can calculate the interest on drawing with help of following formula: –
Interest on Drawing = Total Drawing X Rate of Interest X Period/12 Months
Rate of Interest = 5%
Period = the period/time will be calculated with the help of following formula: –
| Period | = | Time left after 1st withdrawal + Time left after Last withdrawal | ||
| 2 | ||||
B drew at the end of each half-year = 18,000
It means 1st withdrawal has made on 30/09/2019
So, Time left from 30/09/2019 to 31/03/2020
are 6 Months
And last withdrawal has made on 31/03/2020
So, Time left from 31/03/2020 to 31/03/2020
are 0 Month and 0 day
Now, put this time period in the formula
| Period | = | 6 | + | 0 |
| 2 | ||||
| Period | = | 6 | ||
| 2 | ||||
Period = 3
| Total Drawing | = | 18,000 x 3 | = | 54,000 |
| Interest on Drawing | = | 54,000 | X | 5 | X | 6 |
| 100 | 12 |
Interest on Drawing = 450/-
Also, Check out the solved question of previous Chapters: –
T.S. Grewal’s Double Entry Book Keeping +2 (Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms)
- Chapter No. 1 – Financial Statement of Not-For-Profit Organisations
- Chapter No. 2 – Accounting for Partnership Firms – Fundamentals
- Chapter No. 3 – Goodwill: Nature and Valuation
- Chapter No. 4 – Change in Profit-Sharing Ratio Among the Existing Partners
- Chapter No. 5 – Admission of a Partner
- Chapter No. 6 – Retirement/Death of a Partner
- Chapter No. 7 – Dissolution of a Partnership Firm
T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)
- Chapter No. 8 – Company Accounts – Accounting for Share Capital
- Chapter No. 9 – Company Accounts – Issue of Debentures
- Chapter No. 10 – Redemption of Debentures
T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)
- Chapter No. 1 – Financial Statements of a Company
- Chapter No. 2 – Financial Statement Analysis
- Chapter No. 3 – Tools of Financial Statement Analysis – Comparative Statements and Common- Size Statements
- Chapter No. 4 – Accounting Ratios
- Chapter No. 5 – Cash Flow Statement
Check out T.S. Grewal +2 Book 2020@ Official Website of Sultan Chand Publication
