Nawab, Shanaya and Hrithik are partners sharing profits and losses in the ratio of 5 : 3 : 2. The partnership deed provides for charging interest on drawings @10% p.a. The drawings of Nawab, Shanaya and Hrithik were ₹20,000, ₹15,000 and ₹10,000 respectively. After final accounts have been prepared, it was discovered that interest on drawings has not charged. The adjusting entry will be :
Answer & explanation
Correct answer: option 1
The correct answer is option 1-
Shanaya Capital A/c Dr. 75
Hrithik Capital A/c Dr. 50
To Nawab Capital A/c 125
Interest is charged for the average period i.e. 6 months because exact date of drawings is not given.
Interest on Nawab's drawings = 20,000 x 10/100 x 6/12
= 1,000
Interest on Shanaya's drawings = 15,000 x 10/100 x 6/12
= 750
Interest on Hrithik's drawings = 10,000 x 10/100 x 6/12
= 500
Total interest = 1,000 + 750 + 500
= ₹2,250
This total interest is charged from the partners means it is gain for the firm. So this profit is divided between partners in their profit sharing ratio.
Nawab profit = 2,250 x 5/10
= 1,125
Shanaya profit = 2,250 x 3/10
= 675
Hrithik profit = 2,250 x 2/10
= 450
Interest is debited to partners account and profit is credited to partners account.
Nawab is debited with 1,000 and credited with 1,125. So net effect is Nawab is credited with 125.
Shanaya is debited with 750 and credited with 675. So net effect is Shanaya is debited with 75.
Hrithik is debited with 500 and credited with 450. So, net effect is Hrithik is debited with 50.
So, the following adjustment journal entry is passed-
Shanaya's Capital A/c Dr. ₹75
Hrithik's Capital A/c Dr. ₹50
To Nawab's Capital A/c ₹125