The correct answer is: A. P will be credited with Rs. 2,000 and Q will be debited with Rs. 2,000
The interest on capitals for the year ending 31st March 2019 should have been:
P = 5,00,000 * 9% * 12/100 = Rs. 45,000
Q = 4,00,000 * 9% * 12/100 = Rs. 36,000
R = 3,00,000 * 9% * 12/100 = Rs. 27,000
However, the interest on capitals was only provided @ 7% per annum, which means that P, Q and R were each underpaid by Rs. 2,000.
The adjusting entry to correct this error would be:
Interest on Capitals A/c Dr. 6,000
To P’s Capital A/c 2,000
To Q’s Capital A/c 2,000
To R’s Capital A/c 2,000
This entry would credit P’s Capital A/c with Rs. 2,000 and debit Q’s Capital A/c with Rs. 2,000.
The reason for this is that P is entitled to a higher amount of interest than Q, because he has a higher capital. The interest on capitals is a charge on profits, and so it is allocated to the partners in proportion to their capitals.