Question

X, Y and Z are partners in a firm. Their capital is † 20,000; 10,000 and
*4,000 respectively, on which they are entitled to receive 5% p.a. interest. Before
providing interest on capital, the year's profit was * 1,100.
Pass necessary journal entries in the books of the firm when interest on capital is
provided and profit & losses are shared equally.​

Answer 1

Answer:

Three people X, Y, and Z have to get a 5 percentage of interest upon their capital investment, and the extra money they get through investing is termed as profit.

X has a capital of 20,000 on which he gets a 5% interest= 5/100*20000= 1000. Y has a capital of 10,000 and 5% intrest= 500. Z has a capital of 4000 with 5% interest= 200. So, the total profit earned by three of them= 1000+500+200= 1700.

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Explanation:

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Answer 2

Interest on capital of X = 1,000

Y = 500

Z = 200

Explanation:

Working Note-

Calculation of Interest on Capitals

X = 20,000 x $\frac{5}{100}$

=> 1,000

Y = 10,000 x $\frac{5}{100}$

=> 500

Z = 4000 x $\frac{5}{100}$

=> 200

So, the total of Interest of Capital provided by the firm is

=> 1,000+500+200

= 1,700

In this case we see That the firm made a profit of Rs.1,100

But the Interest of Capital which the Firm has to provide is Rs.1,700

So,

In this case as per the Accounting Standards the Interest of Capital is not Provided

Hence,

The profit will be distributed equally among partners:  

20,000 : 10,000 : 4,000

20 : 10 : 4

10 : 5 : 2

P&L Appropriation A/C                               Dr. 1,100

         To X's Capital A/C                                            366

         To Y's Capital A/C                                            367

         To Z's Capital A/C                                            367

( Being Profit Distributed)