Question

Amar and Bimal entered into partnership on 1st April, 2018 contributing ₹ 1,50,000 and ₹ 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 ₹ 1,00,000 for the year ended 31st March 2019.
Pass the Journal entry for interest on capital.

Answer 1

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019
March 31	Profit & Loss Appropriation A/c	Dr.		40,000
	To Amar’s Current A/c				15,000
	To Bimal’s Current A/c				25,000
	(Interest on capital transferred to Profit & Loss Appropriation A/c)

Working Notes:

WN1: Calculation of Interest on Capital:

$$\begin{gathered} \mathrm{Amar}\text{'}\mathrm{s}\mathrm{Interest}\mathrm{on}\mathrm{Capital}=1,50,000\times \frac{10}{100}=\mathrm{Rs}15,000 \\ \mathrm{Bimal}\text{'}\mathrm{s}\mathrm{Interest}\mathrm{on}\mathrm{Capital}=2,50,000\times \frac{10}{100}=\mathrm{Rs}25,000 \end{gathered}$$