10. Ram and Shyam started a partnership. Ram who was rich contributed ₹1,00,000 but
Shyam, who had experience and ability, contributed only ₹10,000 as their capitals.
Besides this, Ram advanced a loan of 50,000 to the Firm in the middle of the year. In the
first year they earned a profit of 61,500. Ram insisted that interest on capital and loan be
provided @ 18% per annum before the distribution of profit, while Shyam demanded a
salary of 2,000 per month.
Answers
Explanation:
the partners capital are fixed,we have to pass entry for additional 1% through current Account.
The following entries should be passes:-
Profit and Loss Appropriation A/c Dr. 6000
To Interest on Capital A/c 6000
(Interest of additional 1% debited to P&L Appropriation Account)
Interest On capital A/c Dr. 6000
To Ram's Current A/c 3000
To Shyam's Current A/c 1000
To Mohan's Current A/c 2000
(Being interest credited to Current account of partners)
Profit and Loss Appropriation A/c Dr (Notes) 1,90,000
To Ram's Current A/c 76,000
To Shyam's Current A/c 38,000
To Mohan's Current A/c 76,000
(Being profits distributed to partners)
Notes: Profit before Interest = 2,50.000
Less:Interest on Capital = (60,000)
Profit after interest = 1,90,000