Question

Ashish and Aakash are partners sharing profit in the ratio of 3 : 2. Their Capital Accounts showed a credit balance of ₹ 5,00,000 and ₹ 6,00,000 respectively as on 31st March, 2018 after debit of drawings during the year of ₹ 1,50,000 and ₹ 1,00,000 respectively. Net profit for the year ended 31st March was ₹ 5,00,000. Interest on capital is to be allowed @ 10% p.a. Pass the journal entry for interest on capital and prepare Profit and Loss Appropriation Account.

Answer 1

Journal Entry and Profit and Loss Appropriation calculation is calculated below

Explanation:

Ashish’s capital at the end of the year = Rs. 5,00,000

Drawings by Ashish = 1,50,000

Total capital for Ashish = 6,50,000 (5,00,000 + 1,50,000)

Aakash’s capital at the end of the year = Rs. 6,00,000

Drawings = 1,00,000

Total capital for Aakash = Rs. 7,00,000

Calculation of Interest:

Interest will be calculated for each one of them at the rate of 10% per annum.

Ashish’s interest

$= 6,50,000 \times \frac {10}{100} = Rs. 65,000$

Aakash’s interest

$= 7,00,000 \times \frac {10}{100} = Rs. 70,000$

Total interest = 1,35,000 (65,000 + 70,000)

Net profit of the company is 5,00,000.

Interest on capital will be deducted by this amount to calculate the profit that will be transferred to each one’s account.  

5,00,000 – 1,35,000 = Rs. 3,65,000

which will be divided with the ratio of 3:2 between the two.

Calculation of Profit:

Ashish’s Profit

$= 3,65,000 \times \frac {3}{5} = Rs. 2,19,000$

Aakash’ Profit

$= 3,65,000\times \frac {2}{5} = Rs. 1,46,000$

Answer 2

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