You visited us 1 times! Enjoying our articles? Unlock Full Access!

Interest Coverage Ratio

The capital a...

Question

The capital accounts of Moli and Golu showed balances of Rs 40,000 and Rs 20,000 as on April 01, 2016. They shared profits in the ratio of 3:2. They allowed interest on capital @ 10% p.a. and interest on drawings, @ 12 p.a. Golu advanced a loan of Rs 10,000 to the firm on August 01, 2016. During the year, Moli withdrew Rs 1,000 per month at the beginning of every month whereas Golu withdrew Rs 1,000 per month at the end of every month. Profit for the year, before the above mentioned adjustments was Rs 20,950. Calculate interest on drawings show distribution of profits and prepare partner’s capital accounts.

Open in App

Solution

Interest on Moli’s Drawing = Total Drawings ×

=

= Rs 780

Interest on Golu’s Drawings = Total Drawing ×

=

= Rs 660

Profit and Loss Adjustment Account

Dr.

Cr.

Particulars

Amount

Rs

Particulars

Amount

Rs

Interest on Capital

Profit and Loss Account

20,950

Moli

4,000

Interest on Drawings

Golu

2,000

6,000

Moli

780

Golu

660

1,440

Interest on Partner’s Loan

Golu’s {10,000 × (6/100) × (8/12)}

400

Profit transferred to

Moli’s Capital {15,990 × (3/5)}

9,594

Golu’s Capital {15,990 × (2/5)}

6,396

15,990

22,390

22,390

Partners’ Capital Account

Dr.

Cr.

Particulars

Moli

Golu

Particulars

Moli

Golu

Drawings

12,000

12,000

Balance b/d

40,000

20,000

Interest on Drawing

780

660

Interest on Capital

4,000

2,000

Balance c/d

40,814

15,736

Profit and Loss Adjustment

9,544

6,396

53,594

28,396

53,594

28,396

Suggest Corrections

Similar questions

Q. On 1st April, 2017, A and B entered into partnership contributing Rs. 60,000 and Rs. 45,000 respectively. They agreed to share profits and losses in the ratio of 3 : 2. B is allowed salary of Rs. 12,000 per year. Interest on capital is to be allowed @ 10% p.a. During the year, A withdrew Rs. 9,000 and B withdrew Rs. 18,000 as drawings. Interest on drawings paid by A and B were Rs. 150 and Rs. 210 respectively. Profit for the year ended 31st March, 2018 before the above adjustments was Rs. 35,000. Show distribution of profits by preparing Profit and Loss Appropriation Account of the firm. Prepare Partners' Capital Accounts also.

Q. The capitals of

X, Y

and

Z

as on 31st March, 2018 amounted to

R s . 1, 50, 000; R s . 5, 50, 000

and

R s . 1, 10, 000

respectively. The profits amounting to

R s . 3, 00, 000

for the year 2017-18 were distributed in the ratio of

4 : 1 : 1

after allowing interest on capital @

10 %

p.a. During the year, each partner withdrew

R s . 50, 000

per month in the beginning of each month. The Partnership Deed was silent as to profit sharing ratio and interest on drawings but provided for interest on capital @

12 %

p.a. Showing your working neatly, pass the necessary adjustment entry to rectify the above error.

Rakhi and Shikha are partners in a firm, with capitals of Rs 2,00,000 and Rs 3,00,000 respectively. The profit of the firm, for the year ended 2016-17 is Rs 23,200. As per the Partnership agreement, they share the profit in their capital ratio, after allowing a salary of Rs 5,000 per month to Shikha and interest on Partner’s capital at the rate of 10% p.a. During the year Rakhi withdrew Rs 7,000 and Shikha Rs 10,000 for their personal use. You are required to prepare Profit and Loss Appropriation Account and Partner’s Capital Accounts.

Q. On 31st March, 2014, balances in the Capital Accounts of Eleen, Monu and Ahmad after making adjustments for profits and drawings were

R s . 1, 60, 000, R s .1, 20, 000

and

R s . 80, 000

respectively. Subsequently, it was discovered that the interest on capital and drawings had been omitted.
(i) The profit for the year ended 31st March, 2014 was

R s . 40, 000

.
(ii) During the year, Eleen and Monu each withdrew a total sum of

R s . 24, 000

in equal instalments in the beginning of each month and Ahmad withdrew a total sum of

R s . 48, 000

in equal instalments at the end of each month.
(iii) The interest on drawings was to be charged @

5 %

p.a. and interest on capital was to be allowed @

10 %

p.a.
(iv) The profit-sharing ratio among the partners was

2 : 1 : 1

. Showing your working notes clearly, pass the necessary rectifying entry.

Q. Prem and Manoj are partners in a firm sharing profits in the ratio of

3 : 2

. The Partnership Deed provided that Prem was to be paid salary of

R s . 2, 500

per month and Manoj was to get a commission of

R s . 10, 000

per year. Interest on capital was to be allowed @ 5% p.a. and interest on drawings was to be charged @ 6% p.a. Interest on Prem's drawings was

R s .1, 250

and on Manoj's drawings was

R s . 425

. Interest on Capitals of the partners were

R s . 10, 000

and

R s . 7, 500

respectively. The firm earned a profit of

R s . 90, 575

for the year ended 31st March, 2018.
Prepare Profit and Loss Appropriation Account of the firm.

Join BYJU'S Learning Program

Profit and Loss Adjustment Account
Dr.					Cr.
Particulars		Amount Rs	Particulars		Amount Rs
Interest on Capital			Profit and Loss Account		20,950
Moli	4,000		Interest on Drawings
Golu	2,000	6,000	Moli	780
			Golu	660	1,440
Interest on Partner’s Loan
Golu’s {10,000 × (6/100) × (8/12)}		400

Profit transferred to
Moli’s Capital {15,990 × (3/5)}	9,594
Golu’s Capital {15,990 × (2/5)}	6,396	15,990

		22,390			22,390

Partners’ Capital Account
Dr.					Cr.
Particulars	Moli	Golu	Particulars	Moli	Golu
Drawings	12,000	12,000	Balance b/d	40,000	20,000
Interest on Drawing	780	660	Interest on Capital	4,000	2,000
Balance c/d	40,814	15,736	Profit and Loss Adjustment	9,544	6,396


	53,594	28,396		53,594	28,396