Anvi, Vani, and Karan were partners in a firm sharing profits in the ratio of
2:2:1. Their fixed capitals were |4,00,000, |5,00,000, and |6,00,000 respectively.
For the year ended 31st March, 2023, interest on capital was credited to the part-
ners’ capital accounts @ 6% p.a. instead of 10% p.a. Pass the necessary adjusting
journal entry.
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Solution and Explanation
The correct interest on capital should be calculated at 10\% p.a., but it was credited at 6\% p.a.
The difference needs to be adjusted. \[ {Difference in Interest on Capital} = {Fixed Capital} \times (10\% - 6\%) \] \[ {Anvi's Interest Adjustment} = rupee 4,00,000 \times 4\% = rupee 16,000 \] \[ {Vani's Interest Adjustment} = rupee 5,00,000 \times 4\% = rupee 20,000 \] \[ {Karan's Interest Adjustment} = rupee 6,00,000 \times 4\% = rupee 24,000 \]
Adjusting journal entry:
Narration: Adjustment for under-crediting of interest on capital for Anvi, Vani, and Karan.
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