P and Q were partners in a firm sharing a profit 7:3 ratio there fixed capital were
P Rs 500000 and Q 800000 for the year ending 31st March 2018 interest on capital was credited @12% instead of 10% show the necessary adjustment entry please any one tell solution
and don't write anything for gaining points plzz don't do this and if anyone knows the answer its my humble request that plzz give full solution
P Rs 500000 and Q 800000 for the year ending 31st March 2018 interest on capital was credited @12% instead of 10% show the necessary adjustment entry please any one tell solution
and don't write anything for gaining points plzz don't do this and if anyone knows the answer its my humble request that plzz give full solution
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Verified answer
Solution:
To adjust the interest on capital credited at 12% instead of 10% for the year ending on 31st March 2018, we need to make the necessary adjustment entry.
Since P and Q have fixed capital amounts, we can calculate the interest on their respective capitals using the correct interest rate of 10%:
Interest on P's capital = Rs 500,000 * 10% = Rs 50,000
Interest on Q's capital = Rs 800,000 * 10% = Rs 80,000
Now, let's calculate the difference between the interest actually credited (at 12%) and the correct interest:
Difference for P = 12% interest - 10% interest = Rs 50,000 * (12% - 10%) = Rs 1,000
Difference for Q = 12% interest - 10% interest = Rs 80,000 * (12% - 10%) = Rs 1,600
To rectify the error, we need to debit the partners' capital accounts for the difference amounts and credit the interest account:
Adjustment Entry:
Debit: P's Capital Account Rs 1,000
Debit: Q's Capital Account Rs 1,600
Credit: Interest on Capital Account Rs 2,600
This adjustment entry will decrease the partners' capital by the difference amount and increase the interest on capital account by the total difference amount of Rs 2,600, compensating for the over-credited interest.
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