Question 20 Chapter 2 of +2-A
20. 2019 after debit of drawings during the year of ₹ 1,50,000 and ₹ 1,00,000 respectively. Net profit for the year ended 31st March, 2019 was ₹ 5,00,000. Interest on capital is to be allowed @ 10% p.a.
Pass the Journal entry for interest on capital and prepare Profit and Loss Appropriation Account.
The solution of Question 20 Chapter 2 of +2-A:
| Date | Particulars |
L.F. | Debit | Credit | |
| April 1 | Profit and Loss Appropriation A/c | Dr | 1,35,000 | ||
| To Ashish’s Capital A/c | 65,000 | ||||
| To Aakash’s Capital A/c | 70,000 | ||||
| (Being interest on capital credited to partners capital account) | |||||
| Profit and Loss Appropriation Account A/c for the year ended 31st March 2019 |
||||||
| Particulars |
Amount | Particulars |
Amount | |||
| To Interest on Capital A/c *1 | By Profit and Loss Adjustment A/c | 5,00,000 | ||||
| Ashish’s Capital A/c | 65,000 | |||||
| Ashish’s Capital A/c | 70,000 | 1,35,000 | ||||
| To Profit Transferred to *2 | ||||||
| Ashish’s Current A/c | 2,19,000 | |||||
| Ashish’s Current A/c | 1,46,000 | 3,65,000 | ||||
| 5,00,000 | 5,00,000 | |||||
Working Note:
*1: -Calculation of Total Interest on Ashish’s Capital, and Aakash’s Capital
| In the Question there closing capital is given. So, we have to calculate opening capital balance as shown below: – |
||
| Particulars |
Amount | Amount |
| Capital Balance at the end of the year | 5,00,000 | 6,00,000 |
| Add: – total drawing during the year | 1,50,000 | 1,00,000 |
| Capital Balance at the beginning of the year | 6,50,000 | 7,00,000 |
Interest on Capital = Capital X Rate of Interest X Period
Rate of Interest = 10%
Period = Whole year(So we don’t need to add period in the formula)
Ashish’s Capital = 5,00,000
= 6,50,000 X 10/100
Total Interest on Ashish’s Capital = 65,000/-
Aakash’s Capital = 6,00,000
Rate of Interest = 5%
= 7,00,000 X 10/100
Total Interest on Aakash’s Capital = 70,000/-
*2: -Calculation of share of profit of Ashish’s and Aakash’s
Profit-Sharing Ratio = 3: 2
Net Profit after interest= 3,65,000
= 3,65,000 X 3/5
Profit share of Ashish’s = 2,19,000/-
= 3,65,000 X 2/5
The profit share of Aakash’s = 1,46,000/-
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Also, Check out the solved question of previous Chapters: –
T.S. Grewal’s Double Entry Book Keeping +2 (Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms)
- Chapter No. 1 – Financial Statement of Not-For-Profit Organisations
- Chapter No. 2 – Accounting for Partnership Firms – Fundamentals
- Chapter No. 3 – Goodwill: Nature and Valuation
- Chapter No. 4 – Change in Profit-Sharing Ratio Among the Existing Partners
- Chapter No. 5 – Admission of a Partner
- Chapter No. 6 – Retirement/Death of a Partner
- Chapter No. 7 – Dissolution of a Partnership Firm
T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)
- Chapter No. 8 – Company Accounts – Accounting for Share Capital
- Chapter No. 9 – Company Accounts – Issue of Debentures
- Chapter No. 10 – Redemption of Debentures
T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)
- Chapter No. 1 – Financial Statements of a Company
- Chapter No. 2 – Financial Statement Analysis
- Chapter No. 3 – Tools of Financial Statement Analysis – Comparative Statements and Common- Size Statements
- Chapter No. 4 – Accounting Ratios
- Chapter No. 5 – Cash Flow Statement
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