A, B and C are partners in a partnership firm sharing profits and loss in ratio of 2:2:1. Their fixed capitals are ₹1,00,000, ₹80,000 and ₹70,000 respectively. In a year, interest on capital was credited to them @ 9% p.a. instead of 12 % p.a. What will be the adjustment entry?
Answer & explanation
Correct answer: option 1
The correct answer is option 1-
B's Current A/c Dr. ₹600
To C's Current A/c ₹600
Interest on capital has been credited @9% p.a. instead of 12 % p.a.
So, extra 3% will be credited which reduce profit of the firm to that extent.
That loss will be shared between partners in their profit-sharing ratio.
A will get credit of ₹3,000 as interest on capital
B will get credit of ₹2,400 as interest on capital
C will get credit of ₹2,100 as interest on capital
Total interest = 3,000 + 2,400 + 2,100
= 7,500
This total interest is loss for the firm so it is divided into partners in their profit sharing ratio i.e. 2:2:1.
A will be debited ₹3,000 for loss
B will be debited ₹3,000 for loss
C will be debited ₹1,500 for loss
Thus,
A will get credit of ₹3000 as interest on capital and debit of ₹3000 as share of loss
B will get credit of ₹2400 as interest on capital and debit of ₹3000 as share of loss
C will get credit of ₹2100 as interest on capital and debit of ₹1500 as share of loss
So net effect is B will be debited with ₹600 and C will be credited with ₹600.
Adjustment entry will be passed in current account because their capitals are fixed.
B's Current A/c Dr. ₹600
To C's Current A/c ₹600