Question

Mohan, Suhaan, and Adit were partners in a firm sharing profits and losses in the ratio \(3 : 2 : 1\). Their fixed capitals were \rupee2,00,000, \rupee1,00,000, and \rupee1,00,000 respectively. For the year ended 31st March 2023, interest on capital was credited to their accounts @8\% p.a. instead of 5\% p.a. Pass necessary adjusting journal entry.

Hint:

When interest on capital is credited at an incorrect rate, the difference is adjusted through the Profit and Loss Adjustment Account in the profit-sharing ratio.

Answer 1

Step 1: Calculate Correct and Excess Interest on Capital \[\text{Interest on Capital (Correct Rate of 5\%):}\]\text{Mohan: } \rupee2,00,000 \times \frac{5}{100} = \rupee10,000, \quad\text{Suhaan: } \rupee1,00,000 \times \frac{5}{100} = \rupee5,000, \quad\text{Adit: } \rupee1,00,000 \times \frac{5}{100} = \rupee5,000.\[\text{Total Correct Interest: } \rupee10,000 + \rupee5,000 + \rupee5,000 = \rupee20,000.\]\[\text{Interest on Capital (Credited at 8\%):}\]\[\text{Mohan: } \rupee2,00,000 \times \frac{8}{100} = \rupee16,000, \quad\text{Suhaan: } \rupee1,00,000 \times \frac{8}{100} = \rupee8,000, \quad\text{Adit: } \rupee1,00,000 \times \frac{8}{100} = \rupee8,000.\]\[\text{Total Credited Interest: } \rupee16,000 + \rupee8,000 + \rupee8,000 = \rupee32,000.\]\[\text{Excess Interest Credited: } \rupee32,000 - \rupee20,000 = \rupee12,000.\]\[\text{Partner-wise Excess: } \text{Mohan: } \rupee6,000, \quad \text{Suhaan: } \rupee3,000, \quad \text{Adit: } \rupee3,000.\] Step 2: Adjust Excess Interest through Profit Sharing Ratio (\(3 : 2 : 1\)) \[\text{Mohan’s Share of Adjustment: } \rupee6,000 \times \frac{3}{6} = \rupee3,000, \quad\text{Suhaan’s Share: } \rupee6,000 \times \frac{2}{6} = \rupee2,000, \quad\text{Adit’s Share: } \rupee6,000 \times \frac{1}{6} = \rupee1,000.\] Journal Entry:\begin{center}\begin{tabular}{|l|p{8cm}|c|r|}\hlineDate & Particulars & L.F. & Amount (\rupee)
\hline2025-01-14 & Mohan’s Capital A/c Dr. & & 3,000
\cline{2-4} & Suhaan’s Capital A/c Dr. & & 2,000
\cline{2-4} & Adit’s Capital A/c Dr. & & 1,000
\cline{2-4} & To Profit and Loss Adjustment A/c & & 6,000
\cline{2-4} & \multicolumn{3}{|l|}{(Being adjustment of excess interest on capital credited to partners)}
\hline\end{tabular}\end{center}