Question

A, B and C are partners in a firm sharing profits and losses equally. On 1st April, 2023, their fixed capitals were ₹ 8,00,000, ₹ 6,00,000 and ₹ 6,00,000, respectively. On 1st October 2023, A advanced ₹ 1,00,000 to the firm, whereas C took a loan of ₹ 1,50,000 from the firm on the same date. It was agreed among the partners that C will pay interest @ 10% p.a.

Profit for the year ended 31st March, 2024, amounted to ₹ 4,20,000 before allowing or charging interest on loans. Pass journal entries for interest on loans and prepare current accounts of the partners.

Hint: Interest on A’s loan will not be credited to his current account. It will be credited to his loan A/c.

Answer 1

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Interest on A’s A/c   ...Dr.		3,000	-
	To A’s loan A/c		-	3,000
	(Being interest on loan provide.)
2.	Profit and Loss A/c   ...Dr.		3,000	-
	To Interest on A’s loan A/c		-	3,000
	(Being the interest on A’s loan transferred to the profit and loss account.)
3.	C’s current A/c   ...Dr.		7,500	-
	To interest on loan to C’s A/c		-	7,500
	(Being interest on loan taken by C at 10% p.a. for 6 months on ₹ 1,50,000 loan.)
4.	Interest on loan to C’s A/c   ...Dr.		7,500	-
	To profit and Loss A/c		-	7,500
	(Being interest on loan to C transferred to the profit and loss account.)

 

Dr.	Profit and Loss A/c		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Interest on A’s loan A/c	3,000	By Profit before interest on loan	4,20,000
To Profit and Loss Appropriation A/c	4,24,500	By interest on C’s loan A/c	7,500
	4,27,500		4,27,500

 

Dr.	Profit and Loss Appropriation A/c				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To share Profit:		4,24,500	By Profit and Loss A/c		4,24,500
A	1,41,500
B	1,41,500
C	1,41,500
		4,24,500			4,24,500

 

Dr.	Partner’s capital A/c						Cr.
Particulars	A	B	C	Particulars	A	B	C
To Interest on loan to C’s A/c	-	-	7,500	By balance b/d	-	-	-
To balance c/d	1,41,500	1,41,500	1,34,000	By Profit and Loss Appropriation  A/c	1,41,500	1,41,500	1,41,500
	1,41,500	1,41,500	1,41,500		1,41,500	1,41,500	1,41,500

Working Note:

1. Interest on loan from A = `1,00,000 xx 6/100 xx 6/12`

= 3,000

2. Interest on loan to C = `1,50,000 xx 10/100 xx 6/12`

= 7,500