Ask a Doubt
Request a call back

Join NOW to get access to exclusive study material for best results

CBSE Class 12-commerce Answered

How to pass the entry Under fixed capital method interest on capital is 
Asked by raju_salgaonkar | 19 Jan, 2020, 08:20: PM
answered-by-expert Expert Answer
Important provisions relating to Interest on Capital:
  • If there is no Partnership Deed or there is no clause in the deed as to interest on capital: Interest on Capital is not allowed.
  • If the Partnership Deed provides for interest on capital but is silent as to the treatment of interest as a charge or appropriation: Interest on capital is treated as appropriation of profit. Such interest is payable only if the firm is making profits. Following are possible situations:

 

  1. In case of loss: No interest is allowed. 
  2. In case of profit, where profit before interest is equal to or more than the interest: Interest is allowed at the agreed rate. 
  3. In case of profit, where profit before interest is less than the interest: Interest is allowed only to the extent of profit in the ratio of interest on capital of each partner.
  • If the Partnership Deed provides for interest as a charge (i.e., to be allowed whether there are profits or loss): Interest on capital is allowed whether there is profit or loss.

 

 
Journal Entries for recording Interest on Capital:
 
In case of Fixed Capital Accounts:
 Interest on Capital A/c                     …Dr.

    To Partners’ Current A/cs

(Being the interest on capital allowed to partners)

Profit and Loss Appropriation A/c    …Dr.

     To Interest on Capital A/cs

(Being the interest on capital transferred to Profit and Loss Appropriation Account)

Alternatively: only one entry can be passed in place of above 2 entries as follows:

      Profit and Loss Appropriation A/c        …Dr.

             To Partners’ Current A/c

     (Being the interest on capital allowed to partners)

Answered by Surabhi Gawade | 20 Jan, 2020, 10:52: AM

Application Videos

Concept Videos

Multiple Choice Questions Practice Test
Answered Unanswered My Questions My Answers
CBSE 12-commerce - Accountancy
What is share premium?
Asked by joymotibarman | 15 Jan, 2024, 02:15: PM
ANSWERED BY EXPERT ANSWERED BY EXPERT
CBSE 12-commerce - Accountancy
what is Goodwill
Asked by divyanshmaheshwari2003 | 04 Nov, 2023, 05:06: PM
ANSWERED BY EXPERT ANSWERED BY EXPERT
CBSE 12-commerce - Accountancy
What is partnership? Define any two features.
Asked by deepamonidas1234 | 21 Sep, 2023, 09:14: PM
ANSWERED BY EXPERT ANSWERED BY EXPERT
CBSE 12-commerce - Accountancy
Analysis of any financial statements consists of analysis of___
Asked by officialpaperio.man | 31 Jan, 2022, 09:14: AM
ANSWERED BY EXPERT ANSWERED BY EXPERT
CBSE 12-commerce - Accountancy
what's ment by bad debts
Asked by swapnil292001 | 08 Nov, 2020, 11:22: AM
ANSWERED BY EXPERT ANSWERED BY EXPERT
CBSE 12-commerce - Accountancy
Why abnormal loss is added to business profit and abnormal gain is deducted from profit while calculating Goodwill of the firm?
Asked by raksha2sanubth | 13 Jul, 2020, 11:22: AM
ANSWERED BY EXPERT ANSWERED BY EXPERT
CBSE 12-commerce - Accountancy
Solve it-
question image
Asked by raksha2sanubth | 13 Jul, 2020, 11:19: AM
ANSWERED BY EXPERT ANSWERED BY EXPERT
CBSE 12-commerce - Accountancy
A and B shared profits in the ratio of 7:3. They dissolved the firm and appointed A to realise the assets . A is to be received 6% commission on the amount realised from Stock, Debtors, B/R and Shares The position of the firm was as follows: - Liablities Rs Assets Rs. Creditors 60000 Plant and Machinery 20000 Repairs and Renewable Reserve 4000 Prepaid Insurance 1200 Bank Loan 20000 Stock 60000 A's Capital A/c 50000 100 shares in D.C.M. Ltd. 5000 B's Capital A/c 20000 Sundry Debtors 38000 B/R 6000 Cash at Bank 8800 A's Current A/c 5000 Profit & Loss Account 10000 154000 154000 Informations : I. A realised the assets as follows: - Full amount from Sundry Debtors and except from one for 2,OOO being insolvent. Stock realised e 52,000,; Shares in D.C.M. were sold for 60 each D_C.M. were sold for each. 2. Half the trade creditors accepted plant and machinery at an agreed valuation of 10% less than the book value and cash of 7000 in full settlement of claims. 3. Remaining creditors were paid off at a discount of 10%. Expenses of realisation amounted to Rs. 700. 4. One quarter's tax amounting to 1500 was due and had to be paid 5. There was a contingent liability amounting to 13,000. It was settled for Rs. 6000. 6. Bank Loan was discharged along with interest due for two months @18% pa Prepare necessary accounts
Asked by ghaewale99 | 06 Jul, 2020, 03:02: PM
ANSWERED BY EXPERT ANSWERED BY EXPERT
CBSE 12-commerce - Accountancy
if the deed is silent interest at the rate of 6% p.a would be charged on the drawings made by the partners true or false  
Asked by sonowalabhilash | 02 Jul, 2020, 09:46: AM
ANSWERED BY EXPERT ANSWERED BY EXPERT
CBSE 12-commerce - Accountancy
Acquired machinery for 10,00,000 Paid 10% upfront, and the rest through draft after 3 months. What is the cash flow from investing activities?
Asked by simarjiv10 | 24 Jun, 2020, 11:25: PM
ANSWERED BY EXPERT ANSWERED BY EXPERT
My Class Videos Tests ₹ Plans Ask a Doubt
Get Latest Study Material for Academic year 24-25 Click here
×