The correct answer is: C. Dr. X and Cr. Y by Rs. 2,000
Explanation:
X, Y and Z are equal partners with fixed capitals of Rs. 5,00,000, Rs. 3,00,000 and Rs. 1,00,000, respectively. After closing the accounts for the year ending 31st March 2019, it was discovered that the interest on capitals was provided @ 6% per annum instead of 5% per annum.
The interest on capitals for X, Y and Z for the year ending 31st March 2019 is calculated as follows:
X = 5,00,000 x 6/100 x 12 = Rs. 30,000
Y = 3,00,000 x 6/100 x 12 = Rs. 18,000
Z = 1,00,000 x 6/100 x 12 = Rs. 6,000
The total interest on capitals that should have been provided for the year ending 31st March 2019 is Rs. 30,000 + Rs. 18,000 + Rs. 6,000 = Rs. 54,000.
However, only Rs. 45,000 was provided. Therefore, an additional interest of Rs. 9,000 (54,000 – 45,000) is to be provided.
Since X, Y and Z are equal partners, the additional interest of Rs. 9,000 is to be shared equally between them. Therefore, each partner will be entitled to an additional interest of Rs. 3,000.
The adjusting entry to record the additional interest on capitals is as follows:
Interest on Capitals A/c Dr. 9,000
X’s Capital A/c Cr. 3,000
Y’s Capital A/c Cr. 3,000
The above entry will debit the Interest on Capitals account and credit the capital accounts of X and Y. This is because the partners are entitled to interest on their capitals. The amount of interest is calculated based on the partners’ capital balances.