Question

If partner’s current acc. Balance us given then how to find interest on capital while making p/l appropriation acc.??!

Answer 1

Answer:

Interest on capital is to be calculated on the capitals at the beginning for the relevant period. If there is any additional capital introduced or capital withdrawn during the year, it will cause change in the capitals and interest is to be calculated proportionately on the changed capitals for the relevant period.

Interest on capital = Amount of capital x Rate of interest per annum x Period of interest

Tutorial note: If capital at the beginning is not given, then it can be calculated as below:



 

Illustration 5

Mannan and Ramesh share profits and losses in the ratio of 3:1. The capital on 1st April 2017 was ₹ 80,000 for Mannan and ₹ 60,000 for Ramesh and their current accounts show a credit balance of ₹ 10,000 and ₹ 5,000 respectively. Calculate interest on capital at 5% p.a. for the year ending 31st March 2018 and show the journal entries.

Solution

Calculation of interest on capital:

Interest on capital = Amount of capital x Rate of interest

Interest on Mannan’s capital = 80,000 x 5/100 = ₹ 4,000

Interest on Ramesh’s capital = 60,000 x 5/100 = ₹ 3,000

Note: Balance of current account will not be considered for calculation of interest on capital.



 

Illustration 6

Antony and Akbar were partners who share profits and losses in the ratio of 3:2. Balance in their capital account on 1st January 2018 was Antony ₹ 60,000 and Akbar ₹ 40,000. On 1st April 2018 Antony introduced additional capital of ₹ 10,000. Akbar introduced additional capital of ₹ 5,000 during the year. Calculate interest on capital at 6% p.a. for the year ending 31st December 2018