Question

32. P and Q were partners in a firm sharing profits in 3:1 ratio. Their respective fixed capitals were
10,00,000 and 6,00,000. The partnership deed provided interest on capital @ 12% p.a. The
partnership deed further provided that interest on capital will be allowed fully even if it will result
into a loss to the firm. The net profit of the firm for the year ended 31st March, 2018 was 1,50,000.
Pass necessary Journal Entries in the books of the firm allowing interest on capital and division
of profit/loss among the partners.
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Answer 1

working note

Interest on capital

P-

$1000000 \times 12 \div 100 = 120000$

Q -

$600000 \times 12 \div 100 = 72000$

Answer 2

What is the P/Q ratio in the partnership?

P and Q were business partners who split profits in a 5:3 ratio. They accepted R as a new partner on 1-4-2014 for a 1/8th profit share with a guaranteed profit of Rs. 75,000. - Accounting

If the partnership agreement provides for the payment of interest on capital, the profits should be distributed to the partners.

P and Q are entitled to 12% annual interest on their capital contribution.

The adjustment entry should be as follows:

- Earnings and Losses Appropriation A/c Dr 72,000

36,000 in P's current account

36,000 to Q's current account (being the interest on capital paid to P and Q at 12% per annum).

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