Q 14 A and B contribute Rs 20,00,000 and Rs 12,00,000 respectively by way of capital on which - Accountancy - Accounting for Partnership Basic Concepts

Question

Q 14 A and B contribute Rs 20,00,000 and Rs 12,00,000 respectively
by way of capital on which they agree to allow interest at 6% p a
Their respective share of profit is 3 : 2 and the profit for the
year is Rs 1,60,000 before allowing interest cm capitals Prepare
the necessary account to allocate interest on capitals :
(i) When partnership deed is silent in treating as a charge or
appropriation, and
(ii) When interest is allowed irrespective of profit

Neha Chopra · Accepted Answer

Dear Student

Calculation of Interest on capital :

Interest on Capital

A (20,00,000 x 6%)
120000

B (12,00,000 x 6%)
72000

Total
192000

1 In case of Appropriation, As profits are insufficient Interest
shall be allowed only to extent of profits in the ratio of interest
on capital to each partner

Profit and Loss
Appropriation A/c
Dr
160,000

To A's Capital A/c
(1,20,000 / 192,000 x 1,60,000)

100,000

To B's Capital A/c
( 72,000 / 1,92,000 x 1,60,000)

60,000

(Being Interest
calculated in ratio because of insufficient profit)

2

Profit and Loss
A/c
Dr
192,000

To A's Capital A/c
(20,00,000 x 6%)

120,000

To B's Capital A/c
(12,00,000 x 6%)

72,000

(Being Interest
charged to profit and loss account)

Regards

	Interest on Capital
A (20,00,000 x 6%)	120000
B (12,00,000 x 6%)	72000
Total	192000

Profit and Loss Appropriation A/c	Dr.	160,000
To A's Capital A/c (1,20,000 / 192,000 x 1,60,000)			100,000
To B's Capital A/c ( 72,000 / 1,92,000 x 1,60,000)			60,000
(Being Interest calculated in ratio because of insufficient profit)

Profit and Loss A/c	Dr.	192,000
To A's Capital A/c (20,00,000 x 6%)			120,000
To B's Capital A/c (12,00,000 x 6%)			72,000
(Being Interest charged to profit and loss account)