x,y and z contribute rs 300000,200000,100000by way of cap on which int is 12% pa they share profit and lsses in ratio 5:3:2 profit for the year 31 mar2003 is 60000before allowing int on cap prepare p and l app account if partnership deed is silent as to treatment to int as a charge or appropriation (ii) partnership deedprovides for int even if it involves the firm in loss.
Dear Student,
The solution to your query is provided below:
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i. When Partnership deed is silent for treatment of Interest on Capital as charge or appropriation, we will take Interest on Capital as an appropriation of profit.
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Profit and Loss Appropriation Account |
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Dr. |
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Cr. |
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Particulars |
Amount Rs |
Particulars |
Amount Rs |
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Interest on Capital: |
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Profit and Loss A/c |
60,000 |
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X |
30,000 |
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Y |
20,000 |
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Z |
10,000 |
60,000 |
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60,000 |
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60,000 |
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ii. When interest on Capital is treated as a charge on profits
| Profit and Loss Appropriation Account | |||||
| Dr. | Cr. | ||||
| Particulars | Amount Rs |
Particulars | Amount Rs |
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| Interest on Capital: | Profit and Loss A/c | 60,000 | |||
| X | 36,000 | Loss transferred to: | |||
| Y | 24,000 | X | 6,000 | ||
| Z | 12,000 | 72,000 | Y | 3,600 | |
| Z | 2,400 | 12,000 | |||
| 60,000 | 60,000 | ||||