Q.A, B and C are partners sharing profits and losses in the ratio 2:2:1. After the final accounts for the year ended 31st March 2024 had been prepared and the books closed, it was discovered that interest on capital @6% p.a. had been omitted. The capitals on which interest should have been allowed were: A ₹2,00,000, B ₹1,50,000 and C ₹1,00,000. Pass the necessary adjustment journal entry to rectify this omission.

Because the interest on capital was never deducted, the amount that should have gone to each partner as interest was instead left inside the profit pool and divided in the old 2:2:1 ratio — so the fix has to both give partners their rightful interest and claw back what they wrongly received as extra profit.

Step 1: Compute the interest on capital that was omitted

A = ₹2,00,000 × 6% = ₹12,000

B = ₹1,50,000 × 6% = ₹9,000

C = ₹1,00,000 × 6% = ₹6,000

Total omitted interest = ₹27,000

Step 2: Recognise that this ₹27,000 was instead distributed as ordinary profit in the old ratio 2:2:1

Since interest on capital was never deducted, the ₹27,000 remained part of the divisible profit and was shared in the profit-sharing ratio 2:2:1 (total 5 parts):

A received (wrongly, as profit) = ₹27,000 × 2/5 = ₹10,800

B received (wrongly, as profit) = ₹27,000 × 2/5 = ₹10,800

C received (wrongly, as profit) = ₹27,000 × 1/5 = ₹5,400

Step 3: Work out the net adjustment for each partner

As a check, note that a Past Adjustment always nets to zero across all partners, since it only redistributes an amount that was always part of the same ₹27,000 — here +1,200 − 1,800 + …

A very common mistake is crediting each partner with the full interest on capital omitted (₹12,000, ₹9,000, ₹6,000) without also debiting them for the excess profit they had already wrongly received in the old ratio — a Past Adjustment entry must always net both ef …