Kamal and Kapil Are partner having fixed capital of 500000 each on 31st March 2018 Kamal introduced further capital of 1,00,000 on 1st October 2018 where Kapil withdrew Rupees 1 lakh on 1st October 2018 out of capital interest on capital is to be followed @ 10% per annum
The firm earned net profit of
6,00,000 from the year ended 31st March 2019. Pass the journal entry for interest oj capital and prepare Profit and Loss appropriation account.
Answers
Answer:
The journal entry for interest on capital is as follows;
Interest on Capital account will be debited. This is because interest payable is an expense and thus debited.
Current account for each partner will be credited because they are receiving money which increases their capital. Therefore:
DR CR
interest on Capital account 110000
Current account-Kamal 60000
current account-Kamil 50000
explanation- the interest is 50000 for Kapil because we are taking 10% of his fixed capital while 60000 for Kamal because he added 100000 to make his fixed capital 600000
Profit and Los Appropriation account for the year ended March 31,2019
Net profit 600000
Less interest on capital
Kamal 60000
Kapil 50000
110000
490000
Share of profit
Kamal 245000
Kapil 245000
490000
we are assuming that the profits are shared equally since their is no any indicated profit/loss sharing ratio.
Drawings is not included in the appropriation account only interest on drawings.