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Home Questions ZH23YDKMUQ
Target Exam

CUET

Subject

Accountancy

Chapter

Accounting for Partnership

Question:

X and Y are partners in a firm sharing profits in the ratio of 3:2 with the capital of ₹50000 and ₹100000 respectively. It is discovered that interest at the rate of 6 per cent per annum, as provided in the partnership deed has not been credited to the partners’ capital accounts before distribution of profit. How this error can be rectified by the partnership firm?

Options:

Profit and loss Adjustment A/c   Dr.   ₹9000
     To X's capital A/c                                   ₹6000
     To Y's current A/c                                  ₹3000
(Interest on capital is provided)

X's Capital A/c Dr.   ₹5400
Y’s capital A/c Dr.    ₹3600
      To Profit and Loss Adjustment A/c    ₹9,000
(Loss on adjustment)

Profit and loss Appropriation A/c   Dr.  ₹9000
    To X's current A/c                                      ₹3000
    To Y's capital A/c                                       ₹6000
(Interest on capital is provided)

X's Capital A/c Dr.   ₹5400
Y’s capital A/c Dr.    ₹3600
      To Profit and Loss Appropriation A/c    ₹9,000
(Loss on adjustment)

Profit and loss Appropriation A/c   Dr.   ₹9000
   To X's capital A/c                                        ₹3000
   To Y's capital A/c                                        ₹6000
(Interest on capital is provided)

X's Capital A/c Dr.   ₹5400
Y’s capital A/c Dr.    ₹3600
      To Profit and Appropriation A/c    ₹9,000
(Loss on adjustment)

Profit and loss Adjustment A/c    Dr.  ₹9000
   To X's capital A/c                                     ₹3000
   To Y's capital A/c                                     ₹6000
(Interest on capital is provided)

X's Capital A/c Dr.   ₹5400
Y’s capital A/c Dr.    ₹3600
      To Profit and Loss Adjustment A/c    ₹9,000
(Loss on adjustment)

Correct Answer:

Profit and loss Adjustment A/c    Dr.  ₹9000
   To X's capital A/c                                     ₹3000
   To Y's capital A/c                                     ₹6000
(Interest on capital is provided)

X's Capital A/c Dr.   ₹5400
Y’s capital A/c Dr.    ₹3600
      To Profit and Loss Adjustment A/c    ₹9,000
(Loss on adjustment)

Explanation:

The interest on capital not credited to the partners' capital accounts works out to be ₹ 3000 (6/100 × ₹50,000) for X and ₹ 6,000 (6/100 × ₹1,00,000) for Y.
This can be rectified by debiting the profit and loss adjustment account and crediting the partners' capital account with the respective amount. And due to this, loss occurred to firm, which is adjusted through debiting partner's capital A/c in their profit sharing ratio.

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