Question

Amar and Bimal entered into partnership on 1st April, 2017 contributing ₹ 1,50,000 and ₹ 2,50,000 respecitvely towards capital. The Partnership Deed provided for interest on capital @ 10% p.a. It also provided that Capital Accounts shall be maintained following Fixed Capital Accounts method. The firm earned net profit of ₹ 1,00,000 for the year ended 31st March 2018. Pass the Journal entry for interest on capital.

Answer 1

Journal entry on interest on capital is given below:

Explanation:

In case there is no agreement made on the interest rate, 6% per annum interest is given as per the Partnership Act, 1932.

Amar’s contribution towards capital = Rs. 1,50,000

Bimal’s contribution towards capital = Rs. 2,50,000

According to their partnership deed, interest rate is given as 10% per annum.

So, the calculation of interest on capital will be done as follows: -

Amar’s Interest

$= 1,50,000 \times \frac {10}{100} = Rs. 15,000$

Bimal’s Interest

$= 2,50,000 \times \frac {10}{100} = Rs. 25,000$

Thus, the Amar and the Bimal's interest will be Rs. 15000 and Rs. 25000 respectively.