Question

A and B were partners is a firm. Their capital account balances on 1st April, 2025 were ₹ 3,00,000 and ₹ 1,00,000, respectively, while current accounts show nil balances. On 1st August, 2025, A withdrew, goods worth ₹ 10,000 and cash ₹ 15,000 for his personal use. B paid firm's rent of ₹ 60,000 from his personal bank account on 1st October, 2025. As per partnership deed, Interest on capital at the rate of 6% p.a. is allowed to partners.

Find out the amount of interest on capitals payable for 2025-26 and pass Adjusting Entry for Interest on Capital.

Answer 1

A's Interest on Capital

Capital = ₹ 3,00,000

Interest = ₹ 3,00,000 × 6% = ₹ 18,000

B's Interest on Capital

• Opening Capital = ₹ 1,00,000
• On 1 October 2025, B paid the firm's rent of ₹ 60,000 from his personal bank account. This is equivalent to introducing additional capital into the business.
• Therefore, interest is calculated as:
• On ₹ 1,00,000 for 12 months:
  = ₹ 1,00,000 × 6% = ₹ 6,000
• On additional ₹ 60,000 from 1 October to 31 March (6 months):
  = ₹ 60,000 × 6% × `6/12` = ₹ 1,800

Total Interest for B = ₹ 6,000 + ₹ 1,800 = ₹ 7,800

Adjusting Entry

Particulars	L.F.	Dr.	Cr.
Profit & Loss Appropriation A/c   ...Dr.		25,800
To A's Capital/Current A/c			18,000
To B's Capital/Current A/c			7,800
(Being interest on capital allowed to partners.)