Question 18 of 50intermediate🔧 ApplyNumerical6 marks

The capital accounts of Moli and Golu showed balances of Rs.40,000 and Rs. 20,000 as on April 01, 2019. 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, 2019. 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.

Correct Answer

(Distribution of Profit) Moli: Rs. 9,594; Golu: Rs. 6,396

(Interest on Drawings) Moli: Rs. 780; Golu: Rs. 660

(Partner's Capital Accounts) Moli's Closing Balance: Rs. 40,814 (Cr.); Golu's Closing Balance: Rs. 15,736 (Cr.)

Exercise: Numerical Questions | Q: 19 | (Chapter: 42)
For More Understanding

Explanation

This question involves calculation of interest on drawings using average period method, treatment of partner's loan interest as charge against profits, and preparation of Profit & Loss Appropriation Account and Partner's Capital Accounts. Interest on drawings for beginning of month withdrawals uses 6.5 months average period, while end of month withdrawals uses 5.5 months.

Solution Steps

  1. Step 1: Interest on Golu's Loan - Loan amount: Rs. 10,000; Period: August 01, 2019 to March 31, 2020 = 8 months; Interest = 10,000×6000 \times 6% × 8/12 = Rs. 400 (Charge against profit)

  2. Step 2: Net Profit Available for Appropriation - Profit before adjustments: Rs. 20,950; Less: Interest on Loan: Rs. 400; Net Profit = Rs. 20,550

  3. Step 3: Interest on Capital - Moli: 40,000×10000 \times 10% = Rs. 4,000; Golu: 20,000×10000 \times 10% = Rs. 2,000; Total = Rs. 6,000

  4. Step 4: Interest on Drawings - Moli (beginning of month): Total = 1,000×12000 \times 12 = Rs. 12,000; Average period = 6.5 months; Interest = 12,000×12000 \times 12% × 6.5/12 = Rs. 780; Golu (end of month): Total = 1,000×12000 \times 12 = Rs. 12,000; Average period = 5.5 months; Interest = 12,000×12000 \times 12% × 5.5/12 = Rs. 660

  5. Step 5: Profit Distribution - Amount available = Net Profit + Interest on Drawings - Interest on Capital = 20,550 + 1,440 - 6,000 = Rs. 15,990; Moli's share (3/5) = Rs. 9,594; Golu's share (2/5) = Rs. 6,396

  6. Step 6: Partner's Capital Accounts - Moli: Opening Rs. 40,000 + Interest on Capital Rs. 4,000 + Profit Rs. 9,594 - Drawings Rs. 12,000 - Interest on Drawings Rs. 780 = Rs. 40,814 (Cr.); Golu: Opening Rs. 20,000 + Interest on Capital Rs. 2,000 + Profit Rs. 6,396 - Drawings Rs. 12,000 - Interest on Drawings Rs. 660 = Rs. 15,736 (Cr.)

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