Question

Sun and Moon were partners in a firm sharing profits and losses equally. Their fixed capitals were \(₹5,00,000\) each. After the accounts for the year ended 31stMarch, 2024 were prepared, it was discovered that interest on capital @ 10% p.a. was not credited to the partners’ current accounts as provided in the partnership deed.
The rectifying adjustment entry for the same will be :

Particulars	Debit Amount (₹)	Credit Amount (₹)
(A) No Entry
(B) Sun’s Current A/c Dr.      To Moon’s Current A/c	50,000	50,000
(C) Moon’s Current A/c Dr.      To Sun’s Current A/c	50,000	50,000
(D) Sun’s Current A/c Dr. Moon’s Current A/c Dr.      To Profit and Loss Appropriation A/c	50,000 50,000	1,00,000

Hint:

Always pass a rectifying entry to adjust omitted interest on capital. It affects the Profit and Loss Appropriation Account.

Answer 1

Interest on capital at 10% on \(₹5,00,000\) per partner amounts to \(₹50,000\).
As this interest was inadvertently omitted, both partners are entitled to receive it. This unrecorded interest represents an expense for the firm and must be adjusted through the Profit and Loss Appropriation Account. Consequently, the partners' current accounts will be debited, and the Profit and Loss Appropriation Account will be credited.
Journal Entry:
Sun’s Current A/c Dr. \(₹50,000\)
Moon’s Current A/c Dr. \(₹50,000\)
To Profit and Loss Appropriation A/c \(₹1,00,000\)
Therefore, option (D) is the correct choice.