# The capital accounts of A and B stood at Rs.400000 and Rs.300000 after necessary adjustments in respect of the drawings and the net profits for the year ended 31st march 2012. It was subsequently ascertained that 5 % p.a. interest on capital and drawings were not taken into account in arriving at the net profit. The drawings of the partners had been; A- Rs.12000 drawn at the end of each quarter and B- Rs.18000 drawn at the end of each half year. The profits for the year as adjusted amounted to Rs.200000. The partners share profits in the ratio 3:2.You are required to paas the journal entries and show the adjusted capital accounts of the partners.

 Journal Date Particulars L.F. DebitAmountRs Credit AmountRs A’s Capital A/c Dr. 1,210 To B’s Capital A/c 1,210 (Omission of Interest on Capital and Drawings, now rectified)

 Partners’ Capital Account Dr. Cr. Particulars A B Particulars A B B’s Capital A/c 1,210 – Balance b/d 4,00,000 3,00,000 Balance c/d 3,98,790 3,01,210 A’s Capital A/c – 1,210 4,00,000 3,01,210 4,00,000 3,01,210

Working Notes:

WN 1Calculation of Drawings

Drawings of A = Rs 12,000 × 4 = Rs 48,000

Drawings of B = Rs 18,000 × 2 = Rs 36,000

WN 2Calculation of capital at the beginning

 A B Capital at the end of the year 4,00,000 3,00,000 Add: Drawings made during the year 48,000 36,000 4,48,000 3,36,000 Less: Profits already credited(2,00,000 in the ratio of 3 : 2) (1,20,000) (80,000) Opening balance of capital 3,28,000 2,56,000

WN 3 Calculation of Interest on Drawings

 Date Amount Number ofMonths Product Oct 01, 2011 Rs 36,000 6 Rs 1,08,000 March 31,2012 Rs 36,000 – – Rs 1,08,000

WN 4  Calculation of Interest on Capital

WN 5

 Profit and Loss Appropriation Accountfor the year ended March 31, 2012 Dr. Cr. Particulars AmountRs Particulars AmountRs Interest on Capital to: Profit and Loss Account A 16,400 (Net Profit) 2,00,000 B 12,800 29,200 Interest on Drawings: Profit transferred to: A 900 A’s Capital A/c 1,03,290 B 450 1,350 B’s Capital A/c 68,860 1,72,150 2,01,350 2,01,350

WN 6

 A B Total Interest on Capital 16,400 12,800 29,200 Interest on Drawings (900) (450) (1,350) Profit and Loss Appropriation 1,03,290 68,860 1,72,150 Right distribution of Rs 2,00,000 1,18,790 81,210 2,00,000 Wrong Distribution of Rs 2,00,000 (3:2) (1,20,000) (80,000) (2,00,000) (1,210) 1,210 NIL

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