Question

(Interest on Capital/Journal Entry) C and D have capitals of 70.000 and 90.000 on
1st April, 2014. C made an addition of 40,000 to his capital on 1st October, 2014 Interestis
allowed @ 10% p.a. on the capital. Pass journal entry for interest on capital for the year
ended 31st March, 2015.
[Ans. Interest on capital : C 9000, D 9000)

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Answer 1

Explanation:

first C had a capital of 70000

for this 70000 we have to calculate interest on capital for a complete year that is 12months

now it is given that the interest percentage is 10% per annum

so, 70000*10/100= 7000

now C added additional capital of 40000 in 1st October,2014. The interest has to be paid only from October and not for the full year, so from October to March of next year, there are 6 months. so we have to calculate the interest for 6 months

therefore for 6months

40000*6/12*10/100=2000

therefore the total interest on Capital is 7000+2000= 9000

the journal entry will be

profit and loss appropriation a/c dr 9000

To c capital a/c 9000

now we are going to find the interest on capital for D he has invested 90000 in the year beginning itself, so he will be paid for the complete one year,

90000*10/100=9000

profit and loss appropriation a/c dr 9000

To D capital a/c 9000

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