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2.10 Double Entry Book Keeping—CBSE XII
Illustration 5 (Calculation of Interest on Capital and Drawings).

On 1st April, 2017, A and B commenced business with contributing capitals of ` 2,00,000 and
` 3,00,000 respectively. The terms of the partnership agreement are:

(i) Profit/loss be shared in the ratio of 2 : 3 between A and B.
(ii) Partners shall be entitled to interest on capital at the commencement of each year @ 6% p.a.

(iii) Interest on drawings shall be charged @ 8% p.a.

During the year ended 31st March, 2018, the firm earned a profit of ` 1,92,800 before adjustment
of interest on capital and drawings. The partners withdrew during the year ` 30,000 each at
the end of every quarter commencing from 30th June, 2017.

Pass the Journal entries, prepare Profit and Loss Appropriation Account and Capital Accounts
of the partners.

Solution: PROFIT AND LOSS APPROPRIATION ACCOUNT
Dr. for the year ended 31st March, 2018 Cr.
Particulars ` Particulars `
To Interest on Capital A/cs: By Profit and Loss A/c 1,92,800
A 12,000 (Net Profit)
B 18,000 30,000 By Interest on Drawings A/cs (Note):
To Profit transferred to Capital A/cs: A 3,600
A (2/5) 68,000 B 3,600 7,200
B (3/5) 1,02,000 1,70,000
2,00,000 2,00,000

Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.
Date Particulars A B Date Particulars A B
` ` ` `
2018 2017
March 31 To Drawings A/c 1,20,000 1,20,000 April 1 By Bank A/c 2,00,000 3,00,000
To Interest on 2018
Drawings A/c 3,600 3,600 March 31 By Interest on
To Balance c/d 1,56,400 2,96,400 Capital A/c 12,000 18,000
By Profit and Loss
Appropriation A/c 68,000 1,02,000
2,80,000 4,20,000 2,80,000 4,20,000

Note: When the fixed amount is withdrawn at the end of each quarter, interest on drawings will be charged
on total drawings for average period of 4.5 months, i.e., ` 1,20,000 × 4.5 /12 × 8/100 = ` 3,600.