Question

A, B and C have capitals of rupees 20000 ,10000 and 4000 respectively on which they are entitled to interest at 5% per annum the profit in the year before charging interest on capital amounted to rupees 1100 prepare profit and loss appropriation account and partners capital account interest on capital is paid and profit and losses are equally​

Answer 1

Interest on capital of X = 1,000

Y = 500

Z = 200

Explanation:

Working Note-

Calculation of Interest on Capitals

X = 20,000 x $\frac{5}{100}$

=> 1,000

Y = 10,000 x $\frac{5}{100}$

=> 500

Z = 4000 x $\frac{5}{100}$

=> 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)

Answer 2

Loss=600

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