Illustration 2
X Y and Z have capitals of 20,000,7 10,000 and 4,000 respectively, on which they are entitled to
interest at 5% per annum. The profit in the year, before charging interest on capital, amounted to 1.100.
Prepare Profit & Loss Account and Capital Accounts when a No interest on capital is paid and profits
and losses are shared equally. No interest on capital is paid and profits and losses are shared in capital
ratio (Calculations are to be made to the nearest rupee).
Solution
Answers
Answer:
Calculation of interest on capital.
Interest on X capital
20,000×
100
6
=Rs1200
Interest on Y's capital
10,000×
100
6
=Rs600
Total interest (1200+600)=Rs1800
Total profits available = Rs.1500
As total interest on capital is more than total profits, so profits of Rs 1500 to be distributed between X & Y as per their interest on capital ratio.
X:Y
Interest on capital = 1200:600 or 2:1
∴ X share = 1500×
3
2
=Rs1000
Y share = 1500×
3
1
=Rs500
Part (ii)
When interest on capital is charge, complete interest on capital will be charged.
Total interest = Rs. 1800
Total Profit = Rs. 1500
There is loss of Rs. 300. This loss of Rs. 300 will be distributed between X and Y in 2:3 ratio.
X share of loss = 300*2/5 = Rs. 120
Y share of loss = 300*3/5 = Rs. 180
Explanation:
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