Question

Amar and Bimal entered into partnership on 1st April, 2017 contributing $Rs.1,50,000$ and $Rs.2,50,000$ respectively towards capital. The Partnership Deed provided for interest on capital @ 10% p.a. it also provided that Capital Accounts shall be maintained following Fixed Capital Accounts method. The firm earned net profit of $Rs.1,00,000$ for the year ended 31st Match, 2018.
Pass the Journal entry for interest on capital.

Answer 1

As capital accounts of the partners are maintained by following Fixed Capital Account method,the interest on capital should be credited to partners current account.

The journal entry for interest on capital is:-

Profit and Loss Appropriation Account Dr. 40,000

To Amar's Current A/c 15,000

To Bimal's Current A/c 25,000

(Being interest on capital paid to partners)