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Question
| A and B are partners with Capitals of ₹ 10,00,000 and ₹ 6,00,000 respectively. Interest on Capital is agreed @ 5% p.a. B is to be allowed a salary of ₹ 10,000 per month. During the year 2023–24, the profits prior to the calculation of interest on capital but after charging B's salary amounted to ₹ 3,00,000. Manager is to be allowed a commission of 5% of the profit after charging such commission. |
Based on the above information you are required to answer the following question:
In Case of Fluctuating Capitals, Interest on Capital will be recorded ______.
Options
On the Credit Side of Current Accounts
On the Debit Side of Current Accounts
On the Credit Side of Capital Accounts
On the Debit Side of Profit & Loss Account
MCQ
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Solution
In Case of Fluctuating Capitals, Interest on Capital will be recorded on the Credit Side of Capital Accounts.
Explanation:
In the Fluctuating Capital Method, interest on capital is credited directly to the Partner's Capital Account because there is no separate Current Account.
Journal Entry:
Interest on Capital A/c ...Dr.
To Partner's Capital A/c
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