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+3 votes
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in Accounts by (40 points)
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On 31st March, 2018 the balance in the Capital Accounts of Abhir; Bobby and Vineet, after making adjustments for profits and drawings were Rs. 8,00,000, Rs. 6,00,000 and Rs. 4,00,000 respectively.

Subsequently, it was discovered that interest on capital and interest on drawings had been omitted. The partners were entitled to interest on capital @ 10% p.a. and were to be charged interest on drawings @ 6% p.a. The drawings during the year were : 

Abhir - Rs. 20,000 drawn at the end of each month, Bobby - Rs. 50,000 drawn at the beginning of every half year and Vineet - Rs. 1,00,000 withdrawn on 31st October, 2017. The net profit for the year ended 31st March, 2018 was Rs. 1,50,000. The profit sharing ratio was 2:2: 1.

Pass necessary adjusting entry for the above adjustments in the books of the firm. Also, show your workings clearly.

2 Answers

+1 vote
by (17.0k points)
selected by
 
Best answer

Adjusting Journal Entry

Date

Particulars

L.F.

Amount (Dr.)

Amount (Cr.)

31 March

Bobby’s  Capital      A/c    

     To Abhir’s  Capital      A/c         

     To Vineet’s  Capital      A/c    

(Being omission of salary , wrong interest on capital credited , now profit corrected)

Dr.

14,402

10,112

4,290

Working note:

Calculation of opening Capital

Particulars

Abhir

Bobby

Vineet

Closing capital

Add; drawings

Less; Profit

8,00,000

2,40,000

60,000

6,00,000

1,00,000

60,000

4,00,000

1,00,000

30,000

Opening capital

9,80,000

6,40,000

4,70,000

Interest on Capital @10p.a.

98,000

64,000

47,000

Total Interest on Capital = 98,000 + 64,000 + 47,000 = 2,09,000

Calculation of opening Drawings:

Abhir = 20,000 × 12 × 6/100 × 5.5/12 = 6,600

Bobby = 50,000 × 2 × 6/100 × 9/12 = 4,500

Vineet = 1,00,000 × 6/100 × 5/12 = 2,500

Total interest on Drawing = 13,600

Total profit after Interest on drawing = 1,50,000 + 13,600 = 1,63,600

Interest on Drawing is 1,63,600 which is less than 2,09,000

Ratio of Interest on capital is 98,000 : 64,000 : 4,7000 = 98 : 64 : 47

Abhir= 1,63,600 × 98/209 = 76,712

Bobby= 1,63,600 × 64/209 = 50,098

Vineet = 1,63,600 × 47/209 = 36,790

Statement Adjustment

Particulars

Abhir

Bobby

Vineet

Interest on capital omitted

Interest on Drawing omitted

76,712

6,600

50,098

4,500

36,790

2,500

Net amount to be Credited

Net loss of above omission

70,112

60,000

45,598

60,000

34,290

30,000

Net effect

10,112

14,402

4,290

Cr.

Dr.

Cr.

+3 votes
by (47.7k points)

Statement Showing Adjustment to be made

Adjusting Journal Entry

Working Notes: 

Calculation of Opening Capital and Interest on Capital

Revised Profits = Given Profits + Interest on drawings – Interest on capitals 

= Rs. 1,50,000 + Rs. 13,600 – Rs. 2,09,000 

= Rs. 45,400 (Loss)

by (10 points)
+1
Thankyou for ans.
But how it is possible to distribute IOC even when we know that the profit is inadequate.
Instead we should distribute profit in IOC RATIO.

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