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.
Dear Student
Calculation of Interest on capital :
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.
2.
Regards
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