A and B are equal partners with capitals of 2,00,000 and 1,00,000 respectively. As per deed, they are allowed interest on capital @ 8% p.a. During the year, the firm earned a profit of 12,000. Pass necessary Journal entries for the above transactions in the books of A and B. Also show your worki
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In this scenario, A and B are equal partners, and the capital amounts are missing. However, based on the information provided, they are allowed interest on their capital at 8% p.a. Let’s go step by step:
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Calculate Interest on Capital:
- Assuming capital amounts for A and B, let's denote them as A's Capital = X and B's Capital = Y.
- Interest for A = 8% of X.
- Interest for B = 8% of Y.
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Determine Profit Distribution:
- Total profit = 12,000.
- Interest on capital is first charged to the profits.
- Subtract the interest from the profits and distribute the remaining profit equally between A and B.
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Journal Entries in the Books of A and B:
Interest on Capital:
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Debit: Profit and Loss Account (Interest on A’s Capital)
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Credit: A’s Capital Account (Interest on Capital)
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Debit: Profit and Loss Account (Interest on B’s Capital)
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Credit: B’s Capital Account (Interest on Capital)
Distribution of Remaining Profit:
- Debit: Profit and Loss Account
- Credit: A’s Capital Account (Share of profit)
- Credit: B’s Capital Account (Share of profit)
Make sure to calculate the exact interest and remaining profit to pass the correct entries. For more guidance, feel free to visit our website.
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