A and B are partners, sharing profits equally. Their fixed capitals were Rs 2,00,000 and Rs 3,00,000 respectively. Interest on capital as provided under partnership deed @10% p.a was omitted. Select the correct option from the following:
A and B are partners, sharing profits equally. Their fixed capitals were Rs 2,00,000 and Rs 3,00,000 respectively. Interest on capital as provided under partnership deed @10% p.a was omitted. Select the correct option from the following:
Solution
Interest on capital @ 10% p.a. that should have been allowed:
- Interest on A's Capital = 2,00,000 × 10% = Rs 20,000
- Interest on B's Capital = 3,00,000 × 10% = Rs 30,000
- Total Interest = Rs 50,000
Since interest was omitted, this Rs 50,000 was not deducted from profits and was instead distributed equally between partners.
What actually happened:
Each partner received Rs 25,000 (50,000 ÷ 2) extra in their profit share
What should have happened:
- A should have received Rs 20,000 as interest
- B should have received Rs 30,000 as interest
Net effect:
- A received: Rs 25,000 but should have received Rs 20,000 → Excess of Rs 5,000
- B received: Rs 25,000 but should have received Rs 30,000 → Short by Rs 5,000
Adjustment required:
The excess amount received by A needs to be transferred to B.
A's Capital A/c ... Dr 5,000
To B's Capital A/c ... 5,000
A's capital account will be debited by Rs 5,000 to rectify the error.
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