On March 31, 2013 the balance in the capital accounts of Eluin, Monu and Ahmed, after making adjustments for profits, drawing, etc; were Rs 80,000, Rs 60,000 and Rs 40,000 respectively. Subsequently, it was discovered that interest on capital and interest on drawings had been omitted. The partners were entitled to interest on capital @ 5% p.a. The drawings during the year were Eluin Rs 20,000; Monu, Rs 15,000 and Ahmed, Rs 9,000. Interest on drawings chargeable to partners were Eluin Rs 500, Monu Rs 360 and Ahmed Rs 200. The net profit during the year amounted to Rs 1,20,000. The profit sharing ratio was 3 : 2 : 1. Pass necessary adjustment entries.
In this question interest on capital shall be calculated on opening capital
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| Eluin | Monu | Ahmed |
| Capital on 31 Mar. 2013 (Closing Capital) | 80,000 | 60,000 | 40,000 |
| Add: Drawings | 20,000 | 15,000 | 9,000 |
| Less: Profit Rs 120,000 (3:2:1) | (60,000) | (40,000) | (20,000) |
| Capital on April 01, 2012 (Opening Capital) | 40,000 | 35,000 | 29,000 |
Adjustment of Profit
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| Eluin | Monu | Ahmed | | Total |
| Interest on Capital (on Opening Capital) | 2,000 | 1,750 | 1,450 | = | 5,200 |
| Less: Interest on Drawings | (500) | (360) | (200) | = | (1,060) |
| Right distribution of Rs 4,140 | 1,500 | 1,390 | 1,250 | = | 4,140 |
| Less: Wrong distribution of Rs 4,140 (in the ratio 3:2:1) | (2,070) | (1,380) | (690) | = | (4,140) |
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| (570) | 10 | 560 | = | NIL |
Adjusting Journal Entry
| Date |
Particulars
| L.F. | Debit Amount Rs | Credit Amount Rs | |
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| Eluin's Capital A/c | Dr. |
| 570 |
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| To Monu's Capital A/c |
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| 10 |
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| To Ahmed's Capital A/c |
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| 560 |
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| (Adjustment of Profit made) |
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