a, b and c have capital of 20000, 10000 and 4000 respectively, on which they are entitle to interest at 5% per annum. the profit in the year , before charging interest on capital, amounted to 1100. prepare profit and loss account and partners capital account when interest is paid and profit and losses are shared equally
Answers
Interest on capital of X = 1,000
Y = 500
Z = 200
Explanation:
Working Note-
Calculation of Interest on Capitals
X = 20,000 x \frac{5}{100}1005
=> 1,000
Y = 10,000 x \frac{5}{100}1005
=> 500
Z = 4000 x \frac{5}{100}1005
=> 200
So, the total of Interest of Capital provided by the firm is
=> 1,000+500+200
= 1,700
In this case we see That the firm made a profit of Rs.1,100
But the Interest of Capital which the Firm has to provide is Rs.1,700
So,
In this case as per the Accounting Standards the Interest of Capital is not Provided
Hence,
The profit will be Distributed Equally
Which is
20,000 : 10,000 : 4,000
20 : 10 : 4
10 : 5 : 2
P&L Appropriation A/C Dr. 1,100
To X's Capital A/C 366
To Y's Capital A/C 367
To Z's Capital A/C 367
( Being Profit Distributed)
Explanation:
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