Question

30. Profit for the year for a partnership firm showed 7,000. A and B are equal partners. However, A has given a loan of 1,00,000 to the firm @ 10%. (a) Profit and Loss A/C Dr 7,000 To Interest on Loan Alc 7,000 (b) Profit and Loss A/C Dr 17,000 To Interest on Loan Alc 10,000 To A's Capital Alc 3,500 To B's Capital A/C 3,500 (c) Profit and Loss A/C Dr 7,000 A's Capital Alc Dr 1,500 B's Capital A/C Dr 1,500 To Interest on Loan A/C 10,000 (d) Profit and Loss Alc Dr 7,000 Profit and Loss Appropriation A/c Dr 3,000 To Interest on Loan ​

Answer 1

Profit and loss A/C Dr. 7,000

A's Capital A/C Dr. 1500

B's Capital A/C Dr. 1500

To Interest on loan A/C 10,000

Answer 2

The answer is (d)

Profit and Loss A/c Dr 7000

A' capital A/c Dr 1500

B's capital A/c Dr 1500

To Interest on loan A/c Cr 10000

• The excess of interest is debited from the partner's account and not from profit and loss appropriation account is because interst on loan is an expense of the firm and recorded on the debit side of the profit and loss account.
• A profit and loss appropriation account is a nominal account made for distribution of Profit/Loss after the distribution of all the expenses relating to interst on Capital, interst on loans, commissions/salaries, etc.