67 :- On 31st March, 2025, after the closing of the accounts, Capital accounts of P, Q and R stood in the books of the firm at Rs 40,000 , Rs 30,000 and Rs 20,000 respectively. Subsequently, it was noticed that interest on capital @5% was not allowed. Profit for the year ended 31st March 2025, was Rs 60,000 and the partners drawings had been P – Rs 10,000, Q – Rs 7,500 and R – Rs 4,500. Profit sharing ratio P , Q and R is 3:2:1.
Pass the necessary adjustment entry.
Solution:-
WORKING NOTES :–
Calculation of interest on capital
Opening capital of P = Closing capital of P – Profit + Drawings
= 40,000 + 10,000 – 30,000 = Rs 20,000
IOC on P’s capital = 20,000 x 5% = Rs 1,000
Opening capital of Q = Closing capital of Q – Profit + Drawings
= 30,000 + 7,500 – 20,000 = Rs 17,500
IOC on Q’s capital = 17,500 x 5% = Rs 875
Opening capital of R = Closing capital of R – Profit + Drawings
= 20,000 + 4,500 – 10,000 = Rs 14,500
IOC on R’s capital = 14,500 x 5% = Rs 725