The correct answer is: C. Sony will be debited with Rs. 1,000 and Romy will be credited with in Rs. 1,000.
The interest on capital is an expense that is allocated to the partners based on their capital balances. In this case, Sony and Romy have capital balances of Rs. 4,00,000 and Rs. 3,00,000, respectively. The interest rate is 10% per annum. Therefore, the interest on capital for Sony is Rs. 40,000 and the interest on capital for Romy is Rs. 30,000.
However, the interest on capital was only provided at 8% per annum. This means that Sony and Romy were underpaid by Rs. 2,000 and Rs. 1,000, respectively. The adjusting entry to correct this error is as follows:
Debit Interest on capital (expense) Rs. 3,000
Credit Sony’s capital Rs. 1,000
Credit Romy’s capital Rs. 2,000
The adjusting entry will increase the interest expense and the capital balances of Sony and Romy. The interest expense will be reported on the income statement and the capital balances will be reported on the balance sheet.
The other options are incorrect because they do not reflect the correct amount of interest that should be allocated to each partner.