Answer :
Answer:
To rectify the errors and omissions in the books of accounts, we need to pass an adjustment entry. Let's first calculate the necessary adjustments step-by-step.
Calculations
Interest on Capital:
Chetan: \text{10% of } 3,60,000 = 36,000
Rajan: \text{10% of } 2,00,000 = 20,000
Salaries:
Chetan:
300
per month
×
12
=
3
,
600
300 per month×12=3,600
Rajan:
1200
quarterly
×
4
=
4
,
800
1200 quarterly×4=4,800
Interest on Drawings:
Chetan:
2
,
000
2,000
Rajan:
1
,
200
1,200
Net Profit Distribution:
Net profit before adjustments = 1,60,000
Adjusted Net Profit = 1,60,000 - (Interest on Capital) - (Salaries) + (Interest on Drawings)
= 1,60,000 - (36,000 + 20,000) - (3,600 + 4,800) + (2,000 + 1,200)
= 1,60,000 - 56,000 - 8,400 + 3,200
= 1,60,000 - 61,200
= 98,800
Profit Share based on ratio (7:3):
Chetan:
7
10
×
98
,
800
=
69
,
160
10
7
×98,800=69,160
Rajan:
3
10
×
98
,
800
=
29
,
640
10
3
×98,800=29,640
Adjustments Needed
Now, let's adjust the amounts actually recorded versus what should have been recorded:
Interest on Capital:
Chetan: 36,000
Rajan: 20,000
Salaries:
Chetan: 3,600
Rajan: 4,800
Interest on Drawings:
Chetan: 2,000
Rajan: 1,200
Profit Sharing:
Correct Shares: Chetan: 69,160, Rajan: 29,640
Actual Shares: Chetan:
1
,
60
,
000
2
=
80
,
000
2
1,60,000
=80,000, Rajan:
1
,
60
,
000
2
=
80
,
000
2
1,60,000
=80,000
Difference:
Chetan:
80
,
000
−
69
,
160
=
10
,
840
80,000−69,160=10,840 (Excess)
Rajan:
80
,
000
−
29
,
640
=
50
,
360
80,000−29,640=50,360 (Excess)
Adjustment Entry
To rectify these errors and adjust for the proper distribution:
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Chetan's Capital A/c Dr. 10,840
Rajan's Capital A/c Dr. 50,360
To Interest on Capital A/c 56,000
To Salaries A/c 8,400
To Interest on Drawings A/c 3,200
To Profit and Loss Appropriation A/c 8,000
Here’s the detailed explanation of the entry:
Debit Chetan's Capital and Rajan's Capital accounts to correct the excess distribution.
Credit Interest on Capital for the interest that should have been allocated.
Credit Salaries for the salaries that should have been allocated.
Credit Interest on Drawings for the interest that was not recorded.
Credit Profit and Loss Appropriation account to adjust the profit share difference.
This entry ensures that all errors and omissions are corrected and the books reflect the correct financial position of Chetan and Rajan's partnership.
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