Question

Ashish and Aakash are partners sharing profit in the ratio of 3 : 2. Their Capital Accounts showed a credit balance of ₹ 5,00,000 and ₹ 6,00,000 respectively as on 31st March, 2019 after debit of drawings during the year of ₹ 1,50,000 and ₹ 1,00,000 respectively. Net profit for the year ended 31st March, 2019 was ₹ 5,00,000. Interest on capital is to be allowed @ 10% p.a.
Pass the Journal entry for interest on capital and prepare Profit and Loss Appropriation Account.

Answer 1

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019
March 31	Profit & Loss Appropriation A/c	Dr.		1,35,000
	To Ashish’s Capital A/c				65,000
	To Aakash’s Capital A/c				70,000
	(Interest on capital transferred to Profit & Loss Appropriation A/c)
				3,65,000
	Profit & Loss Appropriation A/c				2,19,000
	To Ashish’s Capital A/c				1,46,000
	To Akash’s Capital A/c
	(Profit transferred to Partners’ Capital A/c)

Profit and Loss Appropriation Account for the year ended 31 March 2019
Dr.					Cr.
Particulars			Amount (₹)	Particulars	Amount (₹)
Interest on Capital A/c:				Profit and Loss A/c	5,00,000
Ashish		65,000
Aakash		70,000	1,35,000
Profit transferred to:
Ashish’s Capital A/c	2,19,000
Aakash’s Capital A/c	1,46,000		3,65,000
			5,00,000		5,00,000

Working Notes:

WN1: Calculation of Opening Capital:

Particulars	Ashish	Aakash
Capital at the end	5,00,000	6,00,000
Add: Drawings made	1,50,000	1,00,000
Capital at the beginning	6,50,000	7,00,000

WN2: Calculation of Interest on Capital

$\begin{array}{l}\text{Ashish's\hspace{0.17em}Interest\hspace{0.17em}on\hspace{0.17em}Capital\hspace{0.17em}=\hspace{0.17em}}6\text{,50,000}\times \frac{10}{100}=\text{Rs 65,000}\\ \text{Aakash's\hspace{0.17em}Interest\hspace{0.17em}on\hspace{0.17em}Capital\hspace{0.17em}=\hspace{0.17em}}7\text{,00,000}\times \frac{10}{100}=\text{Rs 70,000}\end{array}$