Question 10 of 50advanced🔧 ApplyNumerical5 marks

Leela, Meera and Neha are partners and have omitted interest on capital @9% p.a. for three years ended March 31, 2013. Their fixed capitals on which interest was to be allowed throughout were: Leela Rs. 80,000, Meera Rs. 60,000 and Neha Rs. 1,00,000. Their profit sharing ratio during the last three years were: 2015-16 (2:2:2), 2014-15 (4:5:1), 2013-14 (1:2:2). Record adjustment entry.

Correct Answer

Journal Entry:

Meera's Capital A/c Dr. 10,440 To Leela's Capital A/c 1,440 To Neha's Capital A/c 9,000 (Being adjustment entry for omission of interest on capital for three years)

Exercise: Do it Yourself | Q: 3 | (Page 34)
For More Understanding

Explanation

This question involves adjustment for omitted interest on capital when profit sharing ratios vary each year. The solution requires calculating total interest on capital for each partner over three years, then determining how much of this interest was wrongly distributed as profit in each year's profit sharing ratio. The net effect shows who needs to be debited or credited.

Solution Steps

  1. Step 1: Calculate Interest on Capital per year (9% p.a.) Leela: 80,000×9000 \times 9% = Rs. 7,200 Meera: 60,000×9000 \times 9% = Rs. 5,400 Neha: 1,00,000×9000 \times 9% = Rs. 9,000 Total Interest per year = Rs. 21,600

  2. Step 2: Calculate Total Interest on Capital for 3 years Leela: 7,200×3200 \times 3 = Rs. 21,600 Meera: 5,400×3400 \times 3 = Rs. 16,200 Neha: 9,000×3000 \times 3 = Rs. 27,000 Total = Rs. 64,800

  3. Step 3: Calculate Share of Interest wrongly distributed as profit

    Year 2015-16 (Ratio 2:2:2): Leela: 21,600×2600 \times 2/6 = Rs. 7,200 Meera: 21,600×2600 \times 2/6 = Rs. 7,200 Neha: 21,600×2600 \times 2/6 = Rs. 7,200

    Year 2014-15 (Ratio 4:5:1): Leela: 21,600×4600 \times 4/10 = Rs. 8,640 Meera: 21,600×5600 \times 5/10 = Rs. 10,800 Neha: 21,600×1600 \times 1/10 = Rs. 2,160

    Year 2013-14 (Ratio 1:2:2): Leela: 21,600×1600 \times 1/5 = Rs. 4,320 Meera: 21,600×2600 \times 2/5 = Rs. 8,640 Neha: 21,600×2600 \times 2/5 = Rs. 8,640

  4. Step 4: Calculate Total Amount wrongly credited as profit share Leela: 7,200 + 8,640 + 4,320 = Rs. 20,160 Meera: 7,200 + 10,800 + 8,640 = Rs. 26,640 Neha: 7,200 + 2,160 + 8,640 = Rs. 18,000

  5. Step 5: Calculate Net Adjustment (Interest on Capital - Amount wrongly distributed) Leela: 21,600 - 20,160 = Rs. 1,440 (Credit) Meera: 16,200 - 26,640 = Rs. 10,440 (Debit) Neha: 27,000 - 18,000 = Rs. 9,000 (Credit)

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