Ramesh, Umesh and Suresh 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 Ramesh, Umesh and Suresh during the year ending March 31, 2025 amounted to Rs. 20,000, Rs. 15,000 and Rs. 10,000 respectively. After the final accounts have been prepared, it was discovered that interest on drawings has not been taken into consideration. Which capital account should be credited in the adjustment entry ?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Ramesh’s Capital A/c
A past adjustment sets what should have been done against what was actually done, partner by partner. Interest on drawings was never charged, so two things were left out at once: each partner was not debited with his interest, and the profit that was distributed was smaller than it should have been by the same total.
No dates of drawing are given, so the interest runs for the full year.
- Interest that should have been charged: Ramesh 20,000 × 10% = Rs. 2,000; Umesh 15,000 × 10% = Rs. 1,500; Suresh 10,000 × 10% = Rs. 1,000 — Rs. 4,500 in all.
- That Rs. 4,500 would have raised the divisible profit, so it should have been credited in 5:3:2 — Ramesh Rs. 2,250, Umesh Rs. 1,350, Suresh Rs. 900.
- Ramesh: 2,250 credit against 2,000 debit — Rs. 250 short, so he is credited.
- Umesh: 1,350 credit against 1,500 debit — Rs. 150 too much, so he is debited.
- Suresh: 900 credit against 1,000 debit — Rs. 100 too much, so he is debited.
Only Ramesh comes out short, so his is the one capital account credited; the entry debits Umesh with Rs. 150 and Suresh with Rs. 100.
Note: NCERT works this very Illustration, figures and all. NTA changed the names and the year, and turned its last line into a multiple-choice question.
NCERT Extract
