Question

Naresh and Sukesh are partners with capitals of 3,00,000 each as on 31st March, 2020. Naresh had
withdrawn 50,000 against capital on 1st October, 2019 and 1,00,000 drawings against profit. Sukesh
also had drawings of 1,00,000.
Interest on capital is to be allowed @ 10% p.a.
Net profit for the year was 2,00,000, which is yet to be distributed.
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Answer 1

Answer:

Journal entries for Interest on Capital

Profit and Loss Appropriation A/c Dr.52,500

To Naresh Capital A/c 27,500

To Sukesh Capital A/c 25,000

(Being Interest on capital paid on partner's capital)

Assuming that there is no provision regarding interest on drawings.

Profit and Loss Appropriation A/c Dr 1,47,500

To Naresh Capital A/c 73,750

To Sukesh Capital A/c 73,750

(Being distribution of remaining profit equally)

Calculation of Interest On capital

Naresh : Interest On 2,50,000*10% = 25,000

Interest on 50,000*10%*1/2 = 2500

Sukesh : Interest on 2,00,000*10% = 20,000

Interest on 1,00,00*10%*1/2 = 5,000