Question

X and Y are partners sharing profits and losses in the ratio of 2 : 3 with capitals ₹ 2,00,000 and ₹ 3,00,000 respectively. On 1st October, 2017, X and Y granted loans of ₹ 80,000 and ₹ 40,000 respectively to the firm. Show distribution of profits/losses for the year ended 31st March, 2018 in each of the following alternative cases:
Case 1 : If the profits before interest for the year amounted to ₹ 21,000.
Case 2 : If the profits before interest for the year amounted to ₹ 3,000.
Case 3 : If the profits before interest for the year amounted to ₹ 5,000.
Case 4 : If the loss before interest for the year amounted to ₹ 1,400.

Answer 1

Calculation of Interest on Loan

Case 1- If Profits before any interest for the year amounted to Rs 21,000

Profit and Loss Account for the year ended March 31, 2018
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Interest on X’s Loan		2,400	Profit (before interest)	21,000
Interest on Y’s Loan		1,200
Profit transferred to
X’s Capital A/c (17,400 × 2/5)	6,960
Y’s Capital A/c (17,400 × 3/5)	10,440	17,400
		21,000		21,000

Case 2- If Profits before any interest for the year amounted to Rs 3,000

Profit and Loss Account for the year ended March 31, 2018
Dr.				Cr.
Particulars	Amount Rs	Particulars		Amount Rs
Interest on X’s Loan	2,400	Profit (before interest)		3,000
Interest on Y’s Loan	1,200	Loss transferred to-
		X’s Capital A/c (600 × 2/5)	240
		Y’s Capital A/c (600 × (3/5)	360	600
	3,600			3,600

Case 3- If Profits before any interest for the year amounted to Rs 5,000

Profit and Loss Account for the year ended March 31, 2018
Dr.				Cr.
Particulars		Amount Rs	Particulars	Amount Rs
Interest on X’s Loan		2,400	Profit (before interest)	5,000
Interest on Y’s Loan		1,200
Profit transferred to:
X’s Capital A/c (1400 × 2/5)	560
Y’s Capital A/c (1400 × 3/5)	840	1,400
		5,000		5,000

Case 4- If Loss before any interest for the year amounted to Rs 1,400

Profit and Loss Account for the year ended March 31, 2018
Dr.				Cr.
Particulars	Amount Rs	Particulars		Amount Rs
Loss (before interest)	1,400	Loss transferred to-
Interest on X’s Loan	2,400	X’s Capital A/c (5,000 × 2/5)	2,000
Interest on Y’s Loan	1,200	Y’s Capital A/c (5,000 × 3/5)	3,000	5,000
	5,000			5,000