Question

(a) R and S are partners sharing profits and losses in the ratio of 2:3 with capital of Rs 2,80,000 and Rs 1,40,000 respectively. On Ist October, 2013, R and S advanced loans of Rs 56,000 and Rs 28,000 respectively to the firm. Show the distribution of profit/loss for the year ended 31st March, 2014 if the profit before interest for the year amounted to Rs 2,100.
(b) Is interest on partner's loan recorded in partner's loan account, partner's current account or in both accounts?​

Answer 1

Answer:

(a) part:

AS PER THE QUESTION

Partner's R. : S.

Sharing profits 2. : 3

Capital 2,80,000 :1,40,000

Advanced loans 56000 : 28000

PROFIT BEFORE INTEREST - ₹2,100

TO FIND: DISTRIBUTION OF PROFIT/LOSSES

SOLUTION :

Assuming that there is existence of partnership deed among the partners.Interest on capital and loan @ 6%p.a is to be paid.

Net profit = 2100

less: interest on loan = (2520)

{56000× 6%× 1/2 =1680

28000× 6%× 1/2 =840}

LOSS = ₹420

°And in this case there is no enough profits,interest on capital cannot be provided for.

°Interest on loan is to be provided even if there is loss

.(b) part :

Interest on partners' loan is a charge against profit, that is, whether there is profit or loss for the firm, this interest is to be provided.

Hence, interest on partners' loan is transferred to profit and loss account.

So, interest as a partners' loan is credited to his loan account.

HOPE YOU GOT IT!!!