Leela, Meera and Neha are partners and have omitted interest on capital @ 9% p.a. for three years ended March 31, 2016. Their fixed capitals on which interest was to be allowed throughout were: Leela ₹80,000, Meera ₹60,000 and Neha ₹1,00,000. Their profit sharing ratio during the last three years were:
| Year | Leela | Meera | Neha |
|---|---|---|---|
| 2015-16 | 2 | 2 | 2 |
| 2014-15 | 4 | 5 | 1 |
| 2013-14 | 1 | 2 | 2 |
Record adjustment entry.
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Start your 14-day free trial to unlock the full solution →Interest on capital (₹21,600 total every year, since capitals are fixed) was never credited across three years — instead it flowed into profit and got shared in that year's OWN changing ratio each time. Reconciling all three years nets to: Meera was over-credited ₹10,440; Leela and Neha were short ₹1,440 and ₹9,000.
Concept
With fixed capitals, the interest due each year never changes — but the amount each partner actually received (via the ordinary profit split) changes every year because the profit-sharing ratio itself changed across the three years. The fix compares the constant yearly interest entitlement against the varying amount each partner actually picked up via each year's own ratio, summed across all three years.
Working Notes
Interest due per year (9% p.a., fixed capitals — same every year):
- Leela: 9% of ₹80,000 = ₹7,200
- Meera: 9% of ₹60,000 = ₹5,400
- Neha: 9% of ₹1,00,000 = ₹9,000
- Total per year = ₹21,600; over 3 years = ₹64,800
Amount actually credited each year (the ₹21,600 that should have been interest instead flowed into profit and was split in that year's own ratio):
| Year | Ratio | Leela | Meera | Neha |
|---|---|---|---|---|
| 2013-14 | 1:2:2 (÷5) | 1/5 × 21,600 = 4,320 | 2/5 × 21,600 = 8,640 | 2/5 × 21,600 = 8,640 |
| 2014-15 | 4:5:1 (÷10) | 4/10 × 21,600 = 8,640 | 5/10 × 21,600 = 10,800 | 1/10 × 21,600 = 2,160 |
| 2015-16 | 2:2:2 = 1:1:1 (÷3) | 21,600/3 = 7,200 | 21,600/3 = 7,200 | 21,600/3 = 7,200 |
| 3-year total actually credited | 20,160 | 26,640 | 18,000 |
Net effect (should-have-been-credited minus actually-credited, over 3 years):
- Leela: 21,600 − 20,160 = +1,440 (short — needs a credit)
- Meera: 16,200 − 26,640 = −10,440 (over-credited — needs a debit) …
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