Question

$A$ and $B$ entered into partnership on 1st April, 2017 without any Partnership Deed. They introduced capitals of $Rs.5,00,000$ and $Rs.3,00,000$ respectively. On 31st October, 2017, $A$ advanced $Rs.2,00,000$ by way of loan to the firm without any agreement as to interest. The Profit and Loss Account for the year ended 31st March, 2018 showed a profit of $Rs.4,30,000$, but the partners could not agree upon the amount of interest on loan to be charged and the basis of division of profits.
Pass a Journal entry for distribution of the profit between the partners and prepare Capital Accounts of both the partners and Loan Account of $A$.

Answer 1

Profit and loss Appropriation A/c Dr. 4,25,000

To A's capital A/c 2,12,500

To B's capital A/c 2,12,500

(Being profit distributed equally)

PARTNERS CAPITAL ACCOUNTS

Particulars	A	B	Particulars	A	B
To bal c/d	7,12,500	5,12,500	By bank a/c	5,00,000	3,00,000
			By profit and loss App A/c	2,12,500	2,12,500
Total	7,12,500	5,12,500	Total	7,12,500	5,12,500

A's Loan Account

Particulars	Amount	Particulars	Amount
To bal c/d	2,05,000	By bank A/c	2,00,000
		By interest on A's loan	5000
Total	2,05,000	Total	2,05,000

Calculation of Interest on Loan

Interest on A's loan = 2,00,000*6%*5/12=5000

Interest on A's Loan A/c Dr. 5000

To A's loan A/c 5000

(Being interest on loan paid)

Profit and loss A/c Dr. 5000

To Interest on A's loan A/c 5000

(Being interest transferred to p&l A/c)