72 :- On 31st March, 2018, the balances in the Capital Accounts of Abhir, Bobby and Vineet, after making adjustments for profits and drawings were Rs 8,00,000, Rs 6,00,000, and Rs 4,00,000 respectively.
Subsequently, it was discovered that interest on capital and interest on drawings had been omitted. The partners were entitled to interest on capital @ 10% p.a. and were to be charged interest on drawings @ 6% p.a. The drawings during the year were: Abhir – Rs 20,000 drawn at the end of each month, Bobby – Rs 50,000 drawn at the beginning of every half year, and Vineet – Rs 1,00,000 withdrawn on 31st October, 2017. The net profit for the year ended 31st March 2018 was Rs 1,50,000. The profit-sharing ratio was 2 : 2 : 1.
Pass necessary adjusting entries for the above adjustments in the books of the firm. Also, show your workings clearly.
Solution:-
WORKING NOTES :-
(A) Calculation of Interest on Abhir’s capital
Opening capital of Abhir = Closing capital + Drawings – Profits
= 8,00,000 + 2,40,000 – 60,000
= Rs 9,80,000
Interest on Abhir’s capital = 9,80,000 x 10/100 = Rs 98,000
(B) Calculation of Interest on Bobby’s capital
Opening capital of Bobby = Closing capital + Drawings – Profit
= 6,00,000 + 1,00,000 – 60,000
= Rs 6,40,000
Interest on Bobby’s capital = 6,40,000 x 10/100 = 64,000
(C) Calculation of Interest on Vineet’s capital
Opening capital of Vineet = Closing capital + Drawings – Profit
= 4,00,000 + 1,00,000 – 30,000
= Rs 4,70,000
Interest on Vineet’s capital = 4,70,000 x 10/100 = Rs 47,000
(D) Calculation of Interest on drawings
Interest on Abhir’s drawings = 20,000 x 12 x 6/100 x 5.5/12
=Rs 6,600
Interest on Bobby’s drawings = 50,000 x 2 x 6/100 x 9/12
= Rs 4,500
Interest on Vineet’s drawings = 1,00,000 x 6/100 x 5/12
= Rs 2,500
(E) Total Profit after interest on drawings = Net profit + Interest on drawings
= 1,50,000 + 13,600
= Rs 1,63,600
Total Interest on capital of partners = 98,000 + 64,000 + 47,000
= Rs 2,09,000
Interest on capital > Available profit
Note :- Total appropriation (interest on capital) is more than the appropriation.
Thus, interest on capital would be allowed upto available profits in their interest on capital ratio
98,000 : 64,000 : 47,000 = 98 : 64 : 47
Abhir’s interest on capital = 1,63,600 x 98/209 = Rs 76,712
Bobby’s interest on capital = 1,63,600 x 64/209 = Rs 50,098
Vineet’s interest on capital = 1,63,600 x 47/209 = Rs 36,790