Nagina, Pratap and Himesh are partners sharing profits and losses in the ratio of 5:3:2. The partnership deed provides for charging interest on drawings @ 5% p.a. The drawings of Nagina, Pratap and Himesh during the year ending March 31, 2025 amounted to Rs. 40,000, Rs. 15,000 and Rs. 15,000 respectively. After the final accounts have been prepared, it was discovered that interest on drawings has not been taken into consideration. Give necessary adjusting journal entry.
Nagina, Pratap and Himesh are partners sharing profits and losses in the ratio of 5:3:2. The partnership deed provides for charging interest on drawings @ 5% p.a. The drawings of Nagina, Pratap and Himesh during the year ending March 31, 2025 amounted to Rs. 40,000, Rs. 15,000 and Rs. 15,000 respectively. After the final accounts have been prepared, it was discovered that interest on drawings has not been taken into consideration. Give necessary adjusting journal entry.
Solution
Step 1: Interest on drawings for 6 months (average period)
Formula: Interest = Amount × Rate/100 × 6/12
| Partner | Drawings | Interest (5% × 6/12) |
|---|---|---|
| Nagina | 40,000 | 1,000 |
| Pratap | 15,000 | 375 |
| Himesh | 15,000 | 375 |
| Total | 1,750 |
Step 2: Share this interest income in profit-sharing ratio 5:3:2
| Partner | Share of 1,750 |
|---|---|
| Nagina | 875 |
| Pratap | 525 |
| Himesh | 350 |
Step 3: Net adjustment (Interest charged − Share of income)
| Partner | Charged | Share | Net |
|---|---|---|---|
| Nagina | 1,000 | 875 | Dr. 125 |
| Pratap | 375 | 525 | Cr. 150 |
| Himesh | 375 | 350 | Dr. 25 |
So,
Nagina's Capital A/c Dr. 125
Himesh's Capital A/c Dr. 25
To Pratap's Capital A/c 150
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