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Accounting for Partnership : Basic Concepts – Past Adjustments Solutions

37. The net profit of X, Y and Z for the year ended March 31, 2016 was ₹ 60,000 and the same was distributed among them in their agreed ratio of 3 : 1 : 1. It was subsequently discovered that the under mentioned transactions were not recorded in the books :

(i)

Interest on Capital @ 5% p.a.

(ii)

Interest on drawings amounting to X ₹ 700, Y ₹ 500 and Z ₹ 300.

(iii)

Partner’s Salary : X ₹ 1000, Y ₹ 1500 p.a.

The capital accounts of partners were fixed as : X ₹ 1,00,000, Y ₹ 80,000 and Z ₹ 60,000. Record the adjustment entry.

The necessary adjustment entries can be made in two ways.

(a)

Through Profit and Loss Adjustment Account

(b)

Directly in Partners’ Capital Accounts

(a). Through Profit and Loss Adjustment Account

Journal

Date

Particulars

L.F.

Debit

Amount

₹

Amount

₹

Credit

Amount

₹

Amount

₹

Profit and Loss Adjustment A/c

Dr.

12,000

To X’s Capital A/c

5,000

To Y’s Capital A/c

4,000

To Z’s Capital A/c

3,000

(Being Interest on Capital)

X’s Capital A/c

Dr.

700

Y’s Capital A/c

Dr.

500

Z’s Capital A/c

Dr.

300

To Profit and Loss Adjustment A/c

1,500

(Being Interest on Drawings)

Profit and Loss Adjustment A/c

Dr.

2,500

To X’s Capital A/c

1,000

To Y’s Capital A/c

1,500

(Being Salary to Partner)

X’s Capital A/c

Dr.

7,800

Y’s Capital A/c

Dr.

2,600

Z’s Capital A/c

Dr.

2,600

To Profit and Loss Adjustment A/c

13,000

(Being loss on Adjustment)

(b). Directly in Partners’ Capital Accounts

Statment Showing Net Effect of Considering Past Adjustments

Details

Amount

X

₹

X

₹

Amount

₹

Y

₹

Y

Amount

₹

Z

₹

Z

Total

Amount

₹

Amount

₹

(i) Amount which should have been credited

as interest on capital

as interest on capital

5,000 (Cr.)

4,000 (Cr)

3,000(Cr.)

12,000 (Cr.)

(ii) Amount which should have been debited

as interest on drawings

as interest on drawings

700 (Dr.)

500 (Dr.)

300 (Dr.)

1,500 (Dr.)

(iii) Amount which should have been credited

as salary

as salary

1,000 (Cr.)

1,500 (Cr.)

–

1,500 (Cr.)

(iv) Total

5,300 (Cr.)

5,000 (Cr)

2,700 (Cr.)

13,000 (Cr.)

(v) Amount actually credited

by way of share of profit

(₹ 13,000 divided in the ratio 1:3:1)

by way of share of profit

(₹ 13,000 divided in the ratio 1:3:1)

7,800 (Dr.)

2,600 (Dr.)

2,600 (Dr.)

13,000 (Dr.)

(vii) Difference between (iv) and (v)

(Net Effect)

(Net Effect)

Dr. 2,500

Excess

Excess

Cr. 2,400

Short

Short

Cr. 100

Short

Short

–

Journal

Date

Particulars

L.F.

Debit

Amount

₹

Amount

₹

Credit

Amount

₹

Amount

₹

X’s Capital A/c

Dr.

2,500

To Y’s Capital

2,400

To Z’s Capital

100

(Being adjustment to profit for omission of interest on capital, interest on drawings and salary)

Working Notes:

Interest on Capital:

X

{= ₹~1,00,000 × \dfrac{5}{100}}

= ₹ 5,000

Y

{= ₹~80,000 × \dfrac{5}{100}}

= ₹ 4,000

Z

{= ₹~60,000 × \dfrac{5}{100}}

= ₹ 3,000

38. The firm of Harry, Porter and Ali, who have been sharing profits in the ratio of 2 : 2 : 1, have existed for same years. Ali wants that he should get equal share in the profits with Harry and Porter and he further wishes that the change in the profit sharing ratio should come into effect retrospectively were for the last three year. Harry and Porter have agreement on this account.

The profits for the last three years were:

The profits for the last three years were:

₹

2014-15

22,000

2015-16

24,000

2016-17

29,000

Show adjustment of profits by means of a single adjustment journal entry.

The necessary adjustment entries can be made in two ways.

(a)

Through Profit and Loss Adjustment Account

(b)

Directly in Partners’ Capital Accounts

(a). Through Profit and Loss Adjustment Account

Journal

Date

Particulars

L.F.

Debit

Amount

₹

Amount

₹

Credit

Amount

₹

Amount

₹

Harry’s Capital A/c

Dr.

30,000

Porter’s Capital A/c

Dr.

30,000

Ali’s Capital A/c

Dr.

25,000

To Profit and Loss Adjustment A/c

75,000

(Being old profit debited to consider adjustment in profit sharing ratio)

Profit and Loss Adjustment A/c

Dr.

75,000

To Harry’s Capital A/c

30,000

To Porter’s Capital A/c

30,000

To Ali’s Capital A/c

25,000

(Being new profit credited to consider the adjustment in the profit sharing ratio)

(b). Directly in Partners’ Capital Accounts

Statment Showing Net Effect of Considering Past Adjustments

Details

Amount

Harry

₹

Harry

₹

Amount

₹

Porter

₹

Porter

Amount

₹

Ali

₹

Ali

Total

Amount

₹

Amount

₹

(i) Profit which should have been credited

(in the ratio 1:1:1)

(in the ratio 1:1:1)

25,000 (Cr.)

25,000 (Cr)

25,000(Cr.)

75,000 (Cr.)

(ii) Amount actually credited

(in the ratio 2:2:1)

(in the ratio 2:2:1)

30,000 (Dr.)

30,000 (Dr.)

15,000 (Dr.)

75,000 (Dr.)

(iii) Difference between (i) and (ii)

(Net Effect)

(Net Effect)

Dr. 5,000

Excess

Excess

Dr. 5,000

Excess

Excess

Cr. 10,000

Short

Short

–

Journal

Date

Particulars

L.F.

Debit

Amount

₹

Amount

₹

Credit

Amount

₹

Amount

₹

Harry’s Capital A/c

Dr.

5,000

Porter’s Capital A/c

Dr.

5,000

To Ali’s Capital A/c

10,000

(Being adjustment made after considering the profit sharing ratio as 1:1:1)

Working Notes:

Profit Distributed in 2:2:1 ratio

Total Profit

= ₹ 22,000 + ₹ 24,000 + ₹ 29,000

= ₹ 75,000

Harry

{= ₹~75,000 × \dfrac{2}{5}}

= ₹ 30,000

Porter

{= ₹~75,000 × \dfrac{2}{5}}

= ₹ 30,000

Ali

{= ₹~75,000 × \dfrac{2}{5}}

= ₹ 15,000

Profit Distributed in 1:1:1 ratio

Total Profit

= ₹ 75,000

Harry

{= ₹~75,000 × \dfrac{1}{3}}

= ₹ 25,000

Porter

{= ₹~75,000 × \dfrac{3}{3}}

= ₹ 25,000

Ali

{= ₹~75,000 × \dfrac{1}{3}}

= ₹ 25,000

39. Mannu and Shristhi are partners in a firm sharing profit in the ratio of 3 : 2. Following is the balance sheet of the firm as on March 31, 2017.

Balance Sheet as at March 31, 2017

Liabilities

Amount

₹

₹

Assets

Amount

₹

₹

Mannu’s Capital

30,000

Drawings :

Shristhi’s Capital

10,000

40,000

Mannu

4,000

Shristhi

2,000

6,000

Other Assets

34,000

40,000

40,000

Profit for the year ended March 31, 2017 was ₹ 5,000 which was divided in the agreed ratio, but interest @ 5% p.a. on capital and @ 6% p.a. on drawings was omitted. Adjust interest on drawings on an average basis for 6 months. Give the adjustment entry.

The necessary adjustment entries can be made in two ways.

(a)

Through Profit and Loss Adjustment Account

(b)

Directly in Partners’ Capital Accounts

(a). Through Profit and Loss Adjustment Account

Journal

Date

Particulars

L.F.

Debit

Amount

₹

Amount

₹

Credit

Amount

₹

Amount

₹

Profit and Loss Adjustment A/c

Dr.

2,000

To Mannu’s Capital A/c

1,500

To Shrishthi’s Capital A/c

500

(Being Interest on Capital)

Mannu’s Capital A/c

Dr.

120

Shrishthi’s Capital A/c

Dr.

60

To Profit and Loss Adjustment A/c

180

(Being Interest on Drawings)

Mannu’s Capital A/c

Dr.

1,092

Shrishthi’s Capital A/c

Dr.

728

To Profit and Loss Adjustment A/c

1,820

(Being loss on Adjustment)

(b). Directly in Partners’ Capital Accounts

Statment Showing Net Effect of Considering Past Adjustments

Details

Amount

Mannu

₹

Mannu

₹

Amount

₹

Shrishthi

₹

Shrishthi

Total

Amount

₹

Amount

₹

(i) Amount which should have been credited

as interest on capital

as interest on capital

1,500 (Cr.)

500 (Cr)

2,000 (Cr.)

(ii) Amount which should have been debited

as interest on drawings

as interest on drawings

120 (Dr.)

60 (Dr.)

180 (Dr.)

(iii) Total

1,380 (Cr.)

440 (Cr)

1,820 (Cr.)

(iv) Amount actually credited

by way of share of profit

(₹ 1,820 divided in the ratio 3:2)

by way of share of profit

(₹ 1,820 divided in the ratio 3:2)

1,092 (Dr.)

728 (Dr.)

1,820 (Dr.)

(v) Difference between (iii) and (iv)

(Net Effect)

(Net Effect)

Cr. 288

Short

Short

Dr. 288

Excess

Excess

–

Journal

Date

Particulars

L.F.

Debit

Amount

₹

Amount

₹

Credit

Amount

₹

Amount

₹

Shrishthi’s Capital A/c

Dr.

280

To Mannu’s Capital A/c

280

(Being adjustment to profit for omission of interest on capital, interest on drawings)

Working Notes:

Simply put, the problem is stating that the interest on capital and interest on drawings was not considered. Also, note that the interest on drawing need to be considered for 6 months.

Interest on Capital

Mannu

{= ₹~30,000 × \dfrac{5}{100}}

= ₹ 1,500

Shrishthi

{= ₹~10,000 × \dfrac{5}{100}}

= ₹ 500

Interest on Drawings

Duration

= 6 months

Mannu

{= ₹~4,000 × \dfrac{6}{100} × \dfrac{6}{12}}

= ₹ 120

Shrishthi

{= ₹~2,000 × \dfrac{6}{100} × \dfrac{6}{12}}

= ₹ 60

Loss in Profit

= (₹ 1,500 + ₹ 500) – (₹ 120 + ₹ 60)

= ₹ 1,820

Loss adjusted to:

Mannu

{= ₹~1,820 × \dfrac{3}{5}}

= ₹ 1,092

Shrishthi

{= ₹~1,820 × \dfrac{2}{5}}

= ₹ 728

40. On March 31, 2017 the balance in the capital accounts of Eluin, Monu and Ahmed, after making adjustments for profits, drawing, etc; were ₹ 80,000, ₹ 60,000 and ₹ 40,000 respectively. Subsequently, it was discovered that interest on capital and interest on drawings had been omitted.

The partners were entitled to interest on capital @ 5% p.a. The drawings during the year were Eluin ₹ 20,000; Monu, ₹ 15,000 and Ahmed, ₹ 9,000. Interest on drawings chargeable to partners were Eluin ₹ 500, Monu ₹ 360 and Ahmed ₹ 200. The net profit during the year amounted to ₹ 1,20,000. The profit sharing ratio was 3 : 2 : 1. Record necessary adjustment entry.

In this problem, we’ve to make adjustments for Interest on Capital and Interest on Drawings.

However, to calculate the interest on capital, we need the Opening Capital.

However, in the problem, the Closing Capital is given.

So, from the Closing Capital, we need to find the Opening Capital.

We know, for the given case, that

Closing Capital

= Opening Capital

– Drawings

+ Profits

From this, the Opening Capital can be found as

Opening Capital

= Closing Capital

+ Drawings

– Profits

Calculation of Opening Capital

Eluin

Monu

Ahmed

Closing Capital

80,000

60,000

40,000

Drawings

20,000

15,000

9,000

Profit

(60,000)

(40,000)

(20,000)

Opening Capital

40,000

35,000

29,000

The necessary adjustment entries can be made in two ways.

(a)

Through Profit and Loss Adjustment Account

(b)

Directly in Partners’ Capital Accounts

(a). Through Profit and Loss Adjustment Account

Journal

Date

Particulars

L.F.

Debit

Amount

₹

Amount

₹

Credit

Amount

₹

Amount

₹

Profit and Loss Adjustment A/c

Dr.

5,200

To Eluin’s Capital A/c

2,000

To Monu’s Capital A/c

1,750

To Ahmed’s Capital A/c

1,450

(Being Interest on Capital)

Eluin’s Capital A/c

Dr.

500

Monu’s Capital A/c

Dr.

360

Ahmed’s Capital A/c

Dr.

200

To Profit and Loss Adjustment A/c

1,060

(Being Interest on Drawings)

Eluin’s Capital A/c

Dr.

2,070

Monu’s Capital A/c

Dr.

1,380

Ahmed’s Capital A/c

Dr.

690

To Profit and Loss Adjustment A/c

4,140

(Being loss on Adjustment)

(b). Directly in Partners’ Capital Accounts

Statment Showing Net Effect of Considering Past Adjustments

Details

Amount

Eluin

₹

Eluin

₹

Amount

₹

Monu

₹

Monu

Amount

₹

Ahmed

₹

Ahmed

Total

Amount

₹

Amount

₹

(i) Amount which should have been credited

as interest on capital

as interest on capital

2,000 (Cr.)

1,750 (Cr)

1,450 (Cr.)

5,200 (Cr.)

(ii) Amount which should have been debited

as interest on drawings

as interest on drawings

500 (Dr.)

360 (Dr.)

200 (Dr.)

1,060 (Dr.)

(iii) Total

1,500 (Cr.)

1,390 (Cr)

1,250 (Cr.)

4,140 (Cr.)

(iv) Amount actually credited

by way of share of profit

(₹ 4,140 divided in the ratio 3:2:1)

by way of share of profit

(₹ 4,140 divided in the ratio 3:2:1)

2,070 (Dr.)

1,380 (Dr.)

690 (Dr.)

4,140 (Dr.)

(v) Difference between (iii) and (iv)

(Net Effect)

(Net Effect)

Dr. 570

Excess

Excess

Cr. 10

Short

Short

Cr. 560

Short

Short

–

Journal

Date

Particulars

L.F.

Debit

Amount

₹

Amount

₹

Credit

Amount

₹

Amount

₹

Eluin’s Capital A/c

Dr.

570

To Monu’s Capital A/c

10

To Ahmed’s Capital A/c

560

(Being adjustment to profit for omission of interest on capital, interest on drawings)

Working Notes:

Profit Sharing:

Eluin

{= ₹~1,20,000 × \dfrac{3}{6}}

= ₹ 60,000

Monu

{= ₹~1,20,000 × \dfrac{2}{6}}

= ₹ 40,000

Ahmed

{= ₹~1,20,000 × \dfrac{1}{6}}

= ₹ 20,000

Interest on Capital

Eluin

{= ₹~40,000 × \dfrac{5}{100}}

= ₹ 2,000

Monu

{= ₹~35,000 × \dfrac{5}{100}}

= ₹ 1,750

Ahmed

{= ₹~29,000 × \dfrac{5}{100}}

= ₹ 1,450

Total Interest on Capital

= ₹ 2,000 + ₹ 1,750 + ₹ 1,450

= ₹ 5,200

Total Interest on Drawings

= ₹ 500 + ₹ 200

= ₹ 1,060

Profit To Be Adjusted

Interest on Capital

₹ 5,200

Interest on Drawings

(₹ 1,060)

₹ 4,140

Share of Loss in Profit:

Eluin

{= ₹~4,140 × \dfrac{3}{6}}

= ₹ 2,070

Monu

{= ₹ 4,140 × \dfrac{2}{6}}

= ₹ 1,380

Eluin

{= ₹ 4,140 × \dfrac{1}{6}}

= ₹ 690

41. Azad and Benny are equal partners. Their fixed capitals are ₹ 40,000 and , respectively. After the accounts for the year have been prepared it is discovered that interest at 5% p.a. as provided in the partnership agreement, has not been credited to the capital accounts before distribution of profits. It is decided to make an adjustment entry at the beginning of the next year. Record the necessary journal entry.

The necessary adjustment entries can be made in two ways.

(a)

Through Profit and Loss Adjustment Account

(b)

Directly in Partners’ Capital Accounts

(a). Through Profit and Loss Adjustment Account

Journal

Date

Particulars

L.F.

Debit

Amount

₹

Amount

₹

Credit

Amount

₹

Amount

₹

Profit and Loss Adjustment A/c

Dr.

6,000

To Azad’s Capital A/c

2,000

To Benny’s Capital A/c

4,000

(Being Interest on Capital)

Azad’s Capital A/c

Dr.

3,000

Benny’s Capital A/c

Dr.

3,000

To Profit and Loss Adjustment A/c

6,000

(Being loss on Adjustment)

(b). Directly in Partners’ Capital Accounts

Statment Showing Net Effect of Considering Past Adjustments

Details

Amount

Azad

₹

Azad

₹

Amount

₹

Benny

₹

Benny

Total

Amount

₹

Amount

₹

(i) Amount which should have been credited

as interest on capital

as interest on capital

2,000 (Cr.)

4,000 (Cr)

6,000 (Cr.)

(v) Amount actually credited

by way of share of profit

(₹ 6,000 divided in the ratio 1:1)

by way of share of profit

(₹ 6,000 divided in the ratio 1:1)

3,000 (Dr.)

3,000 (Dr.)

6,000 (Dr.)

(iii) Difference between (i) and (ii)

(Net Effect)

(Net Effect)

Dr. 1,000

Excess

Excess

Cr. 1,400

Short

Short

–

Journal

Date

Particulars

L.F.

Debit

Amount

₹

Amount

₹

Credit

Amount

₹

Amount

₹

Azad’s Capital A/c

Dr.

1,000

To Benny’s Capital A/c

1,000

(Being adjustment to profit for omission of interest on capital)

Working Notes:

As both Azad and Benny are equal partners, the profits should be shared in the 1:1 ratio.

Interest on Capital

Azad

{= ₹~40,000 × \dfrac{5}{100}}

= ₹ 2,000

Benny

{= ₹~80,000 × \dfrac{5}{100}}

= ₹ 4,000

Total Interest on Capital

= ₹ 2,000 + ₹ 4,000

= ₹ 6,000

Loss in Share of Profit

Azad

{= ₹~6,000 × \dfrac{1}{2}}

= ₹ 3,000

Benny

{= ₹~6,000 × \dfrac{1}{2}}

= ₹ 3,000

42. Mohan, Vijay and Anil are partners, the balances in their capital accounts being ₹ 30,000, ₹ 25,000 and ₹ 20,000 respectively. In arriving at these figures, the profits for the year ended March 31, 2017 amounting to Rupees 24,000 had been credited to partners in the proportion in which they shared profits. During the year the drawings of Mohan, Vijay and Anil were ₹ 5,000, ₹ 4,000 and ₹ 3,000, respectively. Subsequently, the following omissions were noticed:

(a)

Interest on Capital, at the rate of 10% p.a., was not charged.

(b)

Interest on Drawings: Mohan ₹ 250, Vijay ₹ 200, Anil ₹ 150 was not recorded in the books.

Record necessary corrections through journal entries.

In this problem, we’ve to make adjustments for Interest on Capital and Interest on Drawings.

However, to calculate the interest on capital, we need the Opening Capital.

However, in the problem, the Closing Capital is given.

So, from the Closing Capital, we need to find the Opening Capital.

We know, for the given case, that

Closing Capital

= Opening Capital

– Drawings

+ Profits

From this, the Opening Capital can be found as

Opening Capital

= Closing Capital

+ Drawings

– Profits

Computation of Opening Capital

Mohan

Vijay

Anil

Closing Capital

30,000

25,000

20,000

Drawings

5,000

4,000

3,000

Profit

(8,000)

(8,000)

(8,000)

Opening Capital

27,000

21,000

15,000

The necessary adjustment entries can be made in two ways.

(a)

Through Profit and Loss Adjustment Account

(b)

Directly in Partners’ Capital Accounts

(a). Through Profit and Loss Adjustment Account

Journal

Date

Particulars

L.F.

Debit

Amount

₹

Amount

₹

Credit

Amount

₹

Amount

₹

Profit and Loss Adjustment A/c

Dr.

6,300

To Mohan’s Capital A/c

2,700

To Vijay’s Capital A/c

2,100

To Anil’s Capital A/c

1,500

(Being Interest on Capital)

Mohan’s Capital A/c

Dr.

250

Vijay’s Capital A/c

Dr.

200

Anil’s Capital A/c

Dr.

150

To Profit and Loss Adjustment A/c

600

(Being Interest on Drawings)

Mohan’s Capital A/c

Dr.

1,900

Vijay’s Capital A/c

Dr.

1,900

Anil’s Capital A/c

Dr.

1,900

To Profit and Loss Adjustment A/c

5,700

(Being loss on Adjustment)

(b). Directly in Partners’ Capital Accounts

Statment Showing Net Effect of Considering Past Adjustments

Details

Amount

Mohan

₹

Mohan

₹

Amount

₹

Vijay

₹

Vijay

Amount

₹

Anil

₹

Anil

Total

Amount

₹

Amount

₹

(i) Amount which should have been credited

as interest on capital

as interest on capital

2,700 (Cr.)

2,100 (Cr)

1,500 (Cr.)

5,200 (Cr.)

(ii) Amount which should have been debited

as interest on drawings

as interest on drawings

250 (Dr.)

200 (Dr.)

150 (Dr.)

600 (Dr.)

(iii) Total

2,450 (Cr.)

1,900 (Cr)

1,350 (Cr.)

5,700 (Cr.)

(iv) Amount actually credited

by way of share of profit

(₹ 5,700 divided in the ratio 1:1:1)

by way of share of profit

(₹ 5,700 divided in the ratio 1:1:1)

1,900 (Dr.)

1,900 (Dr.)

1,900 (Dr.)

5,700 (Dr.)

(v) Difference between (iii) and (iv)

(Net Effect)

(Net Effect)

Cr. 550

Short

Short

–

Dr. 550

Excess

Excess

–

Journal

Date

Particulars

L.F.

Debit

Amount

₹

Amount

₹

Credit

Amount

₹

Amount

₹

Anil’s Capital A/c

Dr.

550

To Mohan’s Capital

550

(Being adjustment to profit for omission of interest on capital, interest on drawings)

Working Notes:

As the profit sharing ratio is not provided, we would assume that the profits are shared equally among the three partners i.e. in the ratio 1:1:1

Profit Sharing

Mohan

{= ₹~24,000 × \dfrac{1}{3}}

= ₹ 8,000

Vijay

{= ₹~24,000 × \dfrac{1}{3}}

= ₹ 8,000

Anil

{= ₹~24,000 × \dfrac{1}{3}}

= ₹ 8,000

Interest on Capital

Mohan

{= ₹~27,000 × \dfrac{10}{100}}

= ₹ 2,700

Vijay

{= ₹~21,000 × \dfrac{10}{100}}

= ₹ 2,100

Anil

{= ₹~15,000 × \dfrac{10}{100}}

= ₹ 1,500

Total Interest on Capital

= ₹ 2,700 + ₹ 2,100 + ₹ 1,500

= ₹ 6,300

Total Interest on Drawings

= ₹ 250 + ₹ 200 + ₹ 150

= ₹ 600

Profit To Be Adjusted

Interest on Capital

₹ 6,300

Interest on Drawings

(₹ 600)

₹ 5,700

Share of Loss in Profit:

Mohan

{= ₹~5,700 × \dfrac{1}{3}}

= ₹ 1,900

Vijay

{= ₹ 5,700 × \dfrac{1}{3}}

= ₹ 1,900

Mohan

{= ₹ 5,700 × \dfrac{1}{3}}

= ₹ 1,900

43. Anju, Manju and Mamta are partners whose fixed capitals were ₹ 10,000, ₹ 8,000 and ₹ 6,000, respectively. As per the partnership agreement, there is a provision for allowing interest on capitals @ 5% p.a. but entries for the same have not been made for the last three years. The profit sharing ratio during there years remained as follows:

Year

Anju

Manju

Mamta

2014

4

3

5

2015

3

2

1

2016

1

1

1

Make necessary and adjustment entry at the beginning of the fourth year i.e. April 2015 April 2017.

The necessary adjustment entries can be made in two ways.

(a)

Through Profit and Loss Adjustment Account

(b)

Directly in Partners’ Capital Accounts

(a). Through Profit and Loss Adjustment Account

Journal

Date

Particulars

L.F.

Debit

Amount

₹

Amount

₹

Credit

Amount

₹

Amount

₹

Profit and Loss Adjustment A/c

Dr.

3,600

To Anju’s Capital A/c

1,500

To Manju’s Capital A/c

1,200

To Mamta’s Capital A/c

900

(Being Interest on Capital for 3 years)

Anju’s Capital A/c

Dr.

1,400

Manju’s Capital A/c

Dr.

1,100

Mamta’s Capital A/c

Dr.

1,100

To Profit and Loss Adjustment A/c

3,600

(Being loss on Adjustment)

(b). Directly in Partners’ Capital Accounts

Statment Showing Net Effect of Considering Past Adjustments

Details

Amount

Anju

₹

Anju

₹

Amount

₹

Manju

₹

Manju

Amount

₹

Mamta

₹

Mamta

Total

Amount

₹

Amount

₹

(i) Amount which should have been credited

as interest on capital

as interest on capital

1,500 (Cr.)

1,200 (Cr)

900 (Cr.)

3,600 (Cr.)

(ii) Amount actually credited

by way of share of profit

by way of share of profit

1,400 (Dr.)

1,100 (Dr.)

1,100 (Dr.)

3,600 (Dr.)

(vii) Difference between (iv) and (v)

(Net Effect)

(Net Effect)

Cr. 100

Short

Short

Cr. 100

Short

Short

Dr. 200

Excess

Excess

–

Journal

Date

Particulars

L.F.

Debit

Amount

₹

Amount

₹

Credit

Amount

₹

Amount

₹

Mamta’s Capital A/c

Dr.

200

To Anju’s Capital

100

To Manju’s Capital

100

(Being adjustment to profit for omission of interest on capital)

Working Notes:

Interest on Capital (Yearly)

Anju

{= ₹~10,000 × \dfrac{5}{100}}

= ₹ 500

Manju

{= ₹ 8,000 × \dfrac{5}{100}}

= ₹ 400

Mamta

{= ₹ 6,000 × \dfrac{5}{100}}

= ₹ 300

Total Interest on Capital

= ₹ 500 + ₹ 400 + ₹ 300

= ₹ 1,200

Interest on Capital for 3 years

Anju

= ₹ 500 × 3

= ₹ 1,500

Manju

= ₹ 400 × 3

= ₹ 1,200

Mamta

= ₹ 300 × 3

= ₹ 900

Total

= ₹ 1,500 + ₹ 1,200 + ₹ 900

= ₹ 3,600

Loss on Profit Sharing (in 2014)

Anju

{= ₹~1,200 × \dfrac{4}{12}}

= ₹ 400

Manju

{= ₹~1,200 × \dfrac{3}{12}}

= ₹ 300

Mamta

{= ₹~1,200 × \dfrac{5}{12}}

= ₹ 500

Loss on Profit Sharing (in 2015)

Anju

{= ₹~1,200 × \dfrac{3}{6}}

= ₹ 600

Manju

{= ₹~1,200 × \dfrac{2}{6}}

= ₹ 400

Mamta

{= ₹~1,200 × \dfrac{1}{6}}

= ₹ 200

Loss on Profit Sharing (in 2016)

Anju

{= ₹~1,200 × \dfrac{1}{3}}

= ₹ 400

Manju

{= ₹~1,200 × \dfrac{1}{3}}

= ₹ 400

Mamta

{= ₹~1,200 × \dfrac{1}{3}}

= ₹ 400

Total Loss on Profit (for 3 years)

Anju

= ₹ 400 + ₹ 600 + ₹ 400

= ₹ 1,400

Manju

= ₹ 300 + ₹ 400 + ₹ 400

= ₹ 1,100

Mamta

= ₹ 500 + ₹ 200 + ₹ 400

= ₹ 1,100