Past Adjustments - Illustrations
(1) When there is single error.
Example:
A, B and C, are partners with capitals of ₹100,000, ₹200,000 and ₹300,000 respectively sharing profits and losses in the ratio of 3:2:1. The partnership deed provides for allowing interest on Capital @ 8 % p.a. After the final accounts have been prepared, it was discovered that interest on capital was allowed @ 6% p.a. Give necessary adjusting journal entry.
Partner | Dr. ₹ | Cr. ₹ | Net Dr./Cr. |
A | 6,000 | 2,000 | 4,000 Dr. |
B | 4,000 | 4,000 | ------- |
C | 2,000 | 6,000 | 4,000 Cr. |
Total | 12,000 | 12,000 |
A’s Capital account Dr. 4,000
To B’s Capital account 4,000
(Being the adjusting journal entry)
Past Adjustments - Illustrations
(2) When there are multiple errors.
Example:
The net profit of X, Y and Z for the year ended March 31, 2024 was ₹ 60,000 and the same was distributed among them in their agreed ratio of 3 : 1 : 1. It was subsequently discovered that the following points were not recorded in the books:
(i) Interest on Capital @ 5% p.a.
(ii) Interest on drawings amounting to X ₹ 700, Y ₹ 500 and Z ₹ 300.
(iii) Partner’s Salary: X ₹ 1000 p.a., Y ₹ 1500 p.a.
The capital accounts of partners were fixed as : X ₹ 50,000, Y ₹ 40,000 and Z ₹ 30,000. Record the adjustment entry.
Dr. Profit and loss Appropriation account Cr.
Particulars | ₹ | Particulars | ₹ |
To Interest on capital X To Interest on capital Y To Interest on capital Z To Partners’ salary X To Partners’ salary Y To Bal. trfd to Capital accounts (profit) | 2500 2000 1500 1000 1500 53000 | By Net Profit By Interest on Drawings X By Interest on Drawings Y By Interest on Drawings Z | 60,000 700 500 300 |
61500 | 61500 |
Now the comparative table is to be prepared:
Partner | Dr.₹ | Cr.₹ | Net Dr./Cr. |
X | 36000 | 2500+1000+31800-700=34600 | 1400Dr. |
Y | 12000 | 2000+1500+10600-500=13600 | 1600Cr. |
Z | 12000 | 1500+10600-300=11800 | 200Dr. |
Total | 60000 | 60000 |
X’s capital account Dr. 1400
Z’s capital account Dr. 200
To Y’s Capital account 1600
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