Question

Ashish and Aakash are partners sharing profit in the ratio of $3:2$. Their Capital Accounts showed a credit balance of $Rs.5,00,000$ and $Rs.6,00,000$ respectively as on 31st March, 2018 after debit of drawings during the year of $Rs.1,50,000$ and $Rs.1,00,000$ respectively. Net profit for the year ended 31st March was $Rs.5,00000$. 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

Profit and Loss Appropriation Account

Interest on capital Ashish = 50,000 Aakash = 60,000	1,10,000	Net Profit	5,00,000
Share of profits Ashish = 2,43,000 Aakash = 1,62,000	405000	Interest on Drawings Ashish = 1,50,000*6% = 9,000 Aakash = 1,00,000*6% = 6,000	15,000
Total	5,15,000	Total	5,15,000

Journal Entry for Interest on Capital

Profit and Loss Appropriation Account Dr. 1,10,000

To Ashish Capital A/c 50,000

To Aakash Capital A/c 60,000

(Being Interest on capital credited to partner's capital account)

Assuming that partnership deed exist and it contains provision regarding charge of interest on drawings @ 6%p.a.