X and Y invested Rs. 20,000 & Rs. 10,000. Interest on capital is allowed @ 6% per annum.
Profits are shared in ratio of 2 : 3.Profits for year ending 11.3.2015 is Rs. 1,500.
Show allocation of profits when partnership deed.
a. Allows interest on capital & deed is silent on treating interest as charge.
b. Interest is charge against profit.
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.
Answer:
a)
Interest to X= 1000
Interest allowed by Y = 500
Explanation:
Interest on capital means the interest which we get on our capital .
a) Interest on X' capital = 20,000×6/100= 1200
Y's capital = 10,000× 6/100 = 600
Total interest = 1200 + 600 = 1800
Ratio on interest will be = 1200 : 600
= 2:1
Interest allowed to partner= profit × Interest to be given to partner / total interest
= Interest to X= 1500 × 1200/1800 = 1000
Interest allowed by y = 1500 × 600/1800 = 500
b)
(a)
The case of sufficient profit
profit and loss A/C Dr.
To Interest on capital A/C
( Interest on capital transferred to profit and loss A/C)
(b)
In case of sufficient profit and loss-
Profit and loss adjustment A/C
to Interest on capital A/C
( being interest on capital transferred to p&l adjustment A/C)
It is important that records should be properly maintained in all the department.
FINAL ANSWER -
a)
Interest to X= 1000
Interest allowed by Y = 500
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