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x,yand z are partners in a firm,sharing profit and losses in the ratio of 5:3:2 there fixed capitals were rs.300000,200000,100000 respectively.For the year interest on capital was credited to them @10%p.a instead of 8%p.a showing your working notes clearly ,pass the necessary adjustment journal entry.
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x,yand z are partners in a firm,sharing profit and losses in the ratio...
Adjustment Journal Entry for Interest on Capital
Calculation of Interest on Capital:
Partner X: 300,000 x 10% = 30,000
Partner Y: 200,000 x 10% = 20,000
Partner Z: 100,000 x 10% = 10,000
Total Interest on Capital = 60,000
Adjustment Journal Entry:
Date: End of the year
Particulars Debit ($) Credit ($)
Interest on Capital Account 60,000
Partner X’s Capital Account 5/10 x 60,000 = 30,000
Partner Y’s Capital Account 3/10 x 60,000 = 18,000
Partner Z’s Capital Account 2/10 x 60,000 = 12,000
Explanation:
The adjustment journal entry is made to rectify the error of crediting interest on capital @8%p.a instead of 10%p.a. The entry involves debiting the Interest on Capital account and crediting the capital accounts of the partners in their profit and loss sharing ratio.
Maintenance of Capital Accounts of Partners: Fixed and Fluctuating Capital Method
Fixed Capital Method: In this method, the capital contribution of each partner remains fixed throughout the existence of the firm, unless any changes are made to the agreement. The capital accounts of partners are maintained separately and the profit or loss is shared in the agreed upon ratio. Interest on capital is credited to the partners' capital accounts at a predetermined rate.
Fluctuating Capital Method: In this method, the capital contribution of partners can change over time due to various reasons such as investment or withdrawal of capital, distribution of profits or losses, etc. The capital accounts of partners are adjusted to reflect the changes in their capital contributions. The profit or loss is shared in the agreed upon ratio after adjusting the capital accounts. Interest on capital is also credited to the partners' capital accounts at a predetermined rate.
Overall, the maintenance of capital accounts is crucial for the proper management of a partnership firm. It helps in tracking the individual capital contributions, profits, losses, and interest on capital of each partner. This information is useful for making important financial decisions and ensuring transparency and accountability in the partnership.
Calculation of Interest on Capital:
Partner X: 300,000 x 10% = 30,000
Partner Y: 200,000 x 10% = 20,000
Partner Z: 100,000 x 10% = 10,000
Total Interest on Capital = 60,000
Adjustment Journal Entry:
Date: End of the year
Particulars Debit ($) Credit ($)
Interest on Capital Account 60,000
Partner X’s Capital Account 5/10 x 60,000 = 30,000
Partner Y’s Capital Account 3/10 x 60,000 = 18,000
Partner Z’s Capital Account 2/10 x 60,000 = 12,000
Explanation:
The adjustment journal entry is made to rectify the error of crediting interest on capital @8%p.a instead of 10%p.a. The entry involves debiting the Interest on Capital account and crediting the capital accounts of the partners in their profit and loss sharing ratio.
Maintenance of Capital Accounts of Partners: Fixed and Fluctuating Capital Method
Fixed Capital Method: In this method, the capital contribution of each partner remains fixed throughout the existence of the firm, unless any changes are made to the agreement. The capital accounts of partners are maintained separately and the profit or loss is shared in the agreed upon ratio. Interest on capital is credited to the partners' capital accounts at a predetermined rate.
Fluctuating Capital Method: In this method, the capital contribution of partners can change over time due to various reasons such as investment or withdrawal of capital, distribution of profits or losses, etc. The capital accounts of partners are adjusted to reflect the changes in their capital contributions. The profit or loss is shared in the agreed upon ratio after adjusting the capital accounts. Interest on capital is also credited to the partners' capital accounts at a predetermined rate.
Overall, the maintenance of capital accounts is crucial for the proper management of a partnership firm. It helps in tracking the individual capital contributions, profits, losses, and interest on capital of each partner. This information is useful for making important financial decisions and ensuring transparency and accountability in the partnership.
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x,yand z are partners in a firm,sharing profit and losses in the ratio of 5:3:2 there fixed capitals were rs.300000,200000,100000 respectively.For the year interest on capital was credited to them @10%p.a instead of 8%p.a showing your working notes clearly ,pass the necessary adjustment journal entry. Related: Maintenance of Capital Accounts of Partners: Fixed and Fluctuating Capital Method?
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