Assertion (A): A, B and C are partners. After the final accounts have been closed, it was discovered that interest on drawings @ 6% p.a. had not been taken into consideration. Drawings of the partners for the year ended 31st March, 2021, were ₹ 3,00,000; ₹ 2,00,000; and ₹ 1,00,000, respectively. In the rectifying entry, A will be debited and C will be credited by ₹ 3,000. Reason (R): Interest charged on drawings for an average period of six months will amount to ₹ 9,000, ₹ 6,000 and ₹ 3,000, respectively. This amount will be debited to them, and subsequently the total interest of ₹ 18,000 will be credited to them equally. Thus, A will be debited and C will be credited by ₹ 3,000. In the context of the above two statements, which of the following is correct?

Question

KollegeApply · Accepted Answer

Both (A) and (R) are true, and (R) is the correct explanation of (A). Explanation: Interest on drawings is a charge against the partners, and if it was omitted, it needs to be adjusted by debiting the partner’s capital/current accounts and crediting the firm (or profit shared among the partners). Here, interest at 6% p.a. on ₹ 3,00,000, ₹ 2,00,000, and ₹ 1,00,000 for an average period of 6 months comes to ₹ 9,000, ₹ 6,000, and ₹ 3,000 for A, B, and C respectively. This total of ₹ 18,000 should have increased the firm’s profit and must now be shared equally (assuming equal PSR), i.e., ₹ 6,000 each. So A, who owes ₹ 9,000 but is entitled to ₹ 6,000, is net debited ₹ 3,000, and C, who owes ₹ 3,000 but is entitled to ₹ 6,000, is net credited ₹ 3,000. Thus, both the assertion and the reason are true, and the reason correctly explains the assertion.

AChoose Your Answer