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:

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.

 

 

Profit and Loss Appropriation Account

Dr.

 

 

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Interest on Capital:

 

Profit and Loss A/c

60,000

X

30,000

 

 

 

Y

20,000

 

 

 

Z

10,000

60,000

 

 

 

 

 

 

 

60,000

 

60,000

 

 

 

 




















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
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
       

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