Is there any situation where interest allowed on capital is debited to Profit and Loss Account?
Yes, it is debited to Profit and Loss Account if the Partnership Deed provides that it is to be paid whether the firms earns profit on not.
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What is Interest on Capital? Give one reason why it is allowed to partners.
Answer:- Interest on Capital means the interest on the partner’s capital. It is a distribution of part of the profit in the capital ratio. Interest on capital is allowed to compensate those partners who have contributed more capital than the…
Give the adjusting entry for interest on capital allowed to a partner, when the firm followed the fixed capital method.
Answer:- Adjusting Entry:- Interest on Capital A/c …Dr. To Partner’s Capital A/c (Being the interest on capital allowed to partner)
How will a firm deal with a situation when its partnership deed provides for interest on capital, but the profit earned by it is not enough to do so, at the rate mentioned in the deed?
Answer:- When the amount of available profit is less than the total amount of interest on capital, the available profit will be distributed in the ratio of interest on capital of each partner.
Saloni and Shrishti are partners sharing profits and losses in the ratio of 2:3 with capitals of ₹ 20,000 and ₹ 10,000 respectively. The partnership deed provides for interest on capital @ 6% p.a. and the profit for the year was ₹ 1,500. State giving reason, how much interest on capital will be allowed.
Answer:- Interest on Saloni’s Capital = ₹ 20,000 * 6/100 = ₹ 1,200 Interest on Shrishti’s Capital = ₹ 10,000 * 6/100 = ₹ 600 Since the amount of available profit ₹ 1,500 is less than the total amount of…
In what way would you deal with rent paid to a partner for the use of his premises by the firm in which he is a partner and why?
Answer:- Rent paid to a partner for the use of his premises is a charge against profit and thus, is treated as an expense of the firm to be debited to the Profit and Loss Account and credited to his…
State giving reasons to which account interest on loan by partner is debited and credited if partner’s capitals are fixed.
Answer:- Interest on a Loan by the Partner is debited to the Profit and Loss Account since it is a charge against profit and credited to Partner’s Loan Account since it is a gain to a partner as a lender…
State giving reason to which account interest on loan taken by a partner from the firm is debited and credited if partner’s capitals are fixed.
Answer:- Interest on Loan taken by a partner from the firm is debited to Partner’s Current Account since partner’s capitals are fixed and credited to Profit and Loss Account since it is a gain to a firm.
State one difference between Partner’s Loan Account and Partner’s Capital Account.
Partner’s Loan Account is an account to which loan given by a partner and interest due thereon is credited Partner’s Capital Account is an account to which capital contributed by the partner is credited.
Give the adjusting entry and closing entry for interest on loan taken by a partner from the firm, when the firm follows the Fluctuating Capital Method.
Answer:- a) Adjusting Entry: Concerned Partner’s Capital A/c …Dr. To Interest on Loan A/c ( Being the interest due on loan to partner) b) Closing Entry: Interest on Loan A/c …Dr. To Profit and Loss A/c