Rahul and Samarth were partners sharing P & L in ratio 2 : 1. Their fixed capitals were ₹8,00,000 and ₹10,00,000 respectively for the year ended March 31, 2023, the profits of ₹6,00,000 were distributed without providing for interest on Capitals @ 10% p.a. as provided in deed.
While Passing adjustment entry, Samarth's Current A/c will be ___________ by ₹ ___________
Answer & explanation
Correct answer: option 2
The correct answer is option 2- Credited ₹40,000.
Fixed capital at the end = Rahul and Samarth (₹8,00,000 and ₹10,00,000)
As the capital is fixed, no adjustment are needed in the capital because there is no change in capital of the partners. Profit was transferred to current account.
Interest on Rahul's Capital = ₹8,00,000 x 10/100
= ₹80,000
Interest on Samrath's capital = ₹10,00,000 x 10/100
= ₹1,00,000
Total interest = 80,000 +1,00,000
= ₹1,80,000
This interest is an expense for the firm due to which profit of the firm reduces or loss occurs and this loss is borne by partners in their profit sharing ratio. So, ₹1,80,000 is shared by partners in 2:1.
Rahul share in loss = 1,80,000 x 2/3
= ₹1,20,000
Samrath's share in loss = 1,80,000 x 1/3
= ₹60,000
Rahul is credited by interest of ₹80000 and debited for loss by ₹1,20,000 so net debit is ₹40,000
Smarath is credited by interest of ₹1,00,000 and debited for loss by ₹60,000 so net credit is ₹40,000
So net effect is Rahul is debited by ₹40,000 and Samrath is credited by ₹40,000.