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Q.Ram, Mohan and Sohan were partners sharing profits in the ratio of 2 : 1 : 1. Ram withdrew ₹ 3,000 every month and Mohan withdrew ₹ 4,000 every month. Interest on drawings @ 6% p.a. was charged, whereas the partnership deed was silent about interest on drawings. Showing your working clearly, pass the necessary adjustment entry to rectify the error.

(OR)
Yadu, Vidu and Radhu were partners in a firm sharing profits in the ratio of 4 : 3 : 3. Their fixed capitals on 1st April, 2018 were ₹ 9,00,000, ₹ 5,00,000 and ₹ 4,00,000 respectively. On 1st November, 2018, Yadu gave a loan of ₹ 80,000 to the firm. As per the partnership agreement :
(i) The partners were entitled to an interest on capital @ 6% p.a.
(ii) Interest on partners' drawings was to be charged @ 8% p.a. The firm earned profits of ₹ 2,53,000 (after interest on Yadu's loan) during the year 2018 – 19. Partners' drawings for the year amounted to Yadu : ₹ 80,000, Vidu : ₹ 70,000 and Radhu : ₹ 50,000. Prepare Profit and Loss Appropriation Account for the year ending 31st March, 2019.
CBSECBSE Class XII Board 2020Subjective· 4mImportance★★★★★
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Part (a): reverse the wrongly-charged interest on drawings — adjustment entry is Ram's Capital Dr ₹180, Sohan's Capital Dr ₹630, To Mohan's Capital ₹810.

Part (b): the P&L Appropriation A/c shows a divisible profit of ₹1,53,000 shared Yadu ₹61,200, Vidu ₹45,900, Radhu ₹45,900 (totals ₹2,61,000).

Part (a)

When the partnership deed is silent on interest on drawings, no interest is chargeable. Here it was charged @ 6% p.a., so the entry must be reversed through a single adjustment.

Working Note 1 — interest wrongly charged (average period 6 months, no dates given):

  • Ram: total drawings ₹3,000 × 12 = ₹36,000 → 36,000 × 6% × 6/12 = ₹1,080
  • Mohan: total drawings ₹4,000 × 12 = ₹48,000 → 48,000 × 6% × 6/12 = ₹1,440
  • Sohan: Nil
  • Total = ₹2,520

Working Note 2 — how the error distorted the books. The ₹2,520 was (i) debited to Ram's and Mohan's capitals and (ii) credited to the P&L Appropriation A/c, inflating profit by ₹2,520, which was then shared 2:1:1.

ParticularsRamMohanSohanFirm
Interest on drawings charged (to be credited back)+1,080+1,4400−2,520
Extra profit ₹2,520 in 2:1:1 (to be withdrawn)−1,260−630−630+2,520
Net effect−180 (Dr)+810 (Cr)−630 (Dr)Nil

(Ram 2,520 × 2/4 = 1,260; Mohan 2,520 × 1/4 = 630; Sohan 2,520 × 1/4 = 630.)

Adjustment Journal Entry

ParticularsL.F.Dr (₹)Cr (₹)
Ram's Capital A/c ...Dr180
Sohan's Capital A/c ...Dr630
 To Mohan's Capital A/c810

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