T.S. Grewal Class 12 Chapter 1 Q.25 - Accounting for Partnership Firm Fundamentals

Question 25

Naresh and Sukesh are partners with capitals of ₹3,00,000 each as on 31st March, 2025. Naresh had withdrawn ₹50,000 against capital on 1st October, 2024 and also ₹1,00,000 besides the drawings against capital. Sukesh also had drawings of ₹1,00,000. Interest on capital is to be allowed @ 10% p.a. Net profit for the year was ₹2,00,000, which is yet to be distributed. Pass the Journal entries for interest on capital and distribution of profit.

Solution

JOURNAL

Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
2025 Mar 31	Profit & Loss Appropriation A/c    Dr.		82,500
	To Naresh’s Capital A/c			42,500
	To Sukesh’s Capital A/c			40,000
	(Interest on capital transferred to Profit & Loss Appropriation A/c)
2025 Mar 31	Profit & Loss Appropriation A/c    Dr.		1,17,500
	To Naresh’s Capital A/c			58,750
	To Sukesh’s Capital A/c			58,750
	(Profit distributed equally)

Working Notes:
Opening capital: Naresh = ₹3,00,000 + ₹50,000 (drawings against capital) + ₹1,00,000 (drawings against profit) = ₹4,50,000; Sukesh = ₹3,00,000 + ₹1,00,000 = ₹4,00,000.
Interest on capital: Naresh = (₹4,50,000 × 10% × 6/12) + (₹4,00,000 × 10% × 6/12) = ₹22,500 + ₹20,000 = ₹42,500 (capital reduced by ₹50,000 on 1st October, 2024); Sukesh = ₹4,00,000 × 10% = ₹40,000.
Divisible profit = ₹2,00,000 – ₹82,500 = ₹1,17,500, shared equally = ₹58,750 each.