question_answer

Nitin, Megha, Priyanka and Ankit are partners. Their capital accounts on 1st April, 2016 were Rs. 60,000, Rs. 1,00,000, Rs. 1,60,000 and Rs. 2,00,000 respectively. After the accounts for the year ended 31st March, 2017 have been prepared, it is discovered that interest @ 5% as provided in the partnership agreement has not been credited to partners' capital accounts before distributing profits. So, it is decided to make adjusting entry at the beginning of the next year. Give the necessary journal entry along with working notes.

Answer:

JOURNAL

Date	Particulars		LF	Amt (Dr)	Amt (Cr.)
2017
Apr 1	Nitin's Capital A/c	Dr		3,500
	Megha's Capital A/c	Dr		1,500
	To Priyanka's Capital A/c				1,500
	To Ankit's Capital A/c				3,500
	(Being the adjustment of interest on capital omitted in previous year)

Working Notes 1.                                             Statement Showing Adjustment

Particulars	Nitin	Megha	Priyanka	Ankit	Total
Amount to be Credited
Interest on Capital @ 5%	3,000	5,000	8,000	10,000	26,000
Amount to be Debited
Share of profit (26,000 in 1 : 1 : 1 : 1)	6,500	6,500	6,500	6,500	26,000
	3,500 (Dr)	1,500 (Dr)	1,500 (Cr)	3,500 (Cr)	-

2.   Calculation of Interest on Capital Nitin\[=60,000\times \frac{5}{100}=Rs.\,3,000;\]  Megha \[=1,00,000\times \frac{5}{100}=Rs.\,5,000;\] Priyanka \[=1,60,000\times \frac{5}{100}=Rs.\,8,000;\] Ankit \[=2,00,000\times \frac{5}{100}=Rs.\,10,000;\]