Page 469 - AAAXII

Model Test Papers M.449

12. (a) Calculation of Interest on X’s Drawings:

A B C D = B × C
Date Amount (`) Number of Months up to 31st March, 2018 Product
1st April 20,000 12 2,40,000
1st June 18,000 10 1,80,000
1st November 28,000 5 1,40,000
1st December 10,000 4 40,000
6,00,000
6 1
Interest on X’s Drawings = 6,00,000 ¥` 100 ¥ 12 = ` 3,000.
Calculation of Interest on Y’s Drawings:
Total Drawings during the Year = ` 30,000 × 4 = ` 1,20,000

Rate of Interest 7.5 *
Interest on Y’s Drawings = Total Drawings × ¥
100 12
6 7.5
= ` 1,20,000 × ¥ = ` 4,500.
100 12
* When drawings of equal amounts are made at regular quarterly intervals on the first
day of every quarter, interest should be charged on the whole amount for average period,
i.e., 7.5 months.
Accounting Treatment of Interest on Drawings: As interest on drawings is a gain
to the firm, it is credited to the Profit and Loss Appropriation Account and debited to
Partners’ Capital Accounts (or Partners’ Current Accounts in case of Fixed Capitals).
(i) Adjustment Entry to charge Interest on Drawings:
Partners’ Capital/Current A/cs ...Dr.
To Interest on Drawings A/c
(Being the interest charged on partners’ drawings)
(ii) Closing Entry to close the Interest on Drawings Account:
Interest on Drawings A/c ...Dr.
To Profit and Loss Appropriation A/c
(Being the interest on drawings transferred to Profit and Loss Appropriation A/c)
(b) Rent paid to Y is debited to Profit and Loss Account since it is a charge against
the profit and not an appropriation of profit.
13. (a) JOURNAL

Date Particulars L.F. Dr. (`) Cr. (`)
2018 General Reserve A/c ...Dr. 26,000
April 1 Profit and Loss A/c ...Dr. 24,000
To X’s Capital A/c 25,000
To Y’s Capital A/c 15,000
To Z’s Capital A/c 10,000
(Being the transfer of General Reserve and undistributed profits
to old partners in their old ratio)
X’s Capital A/c ...Dr. 10,000
Y’s Capital A/c ...Dr. 6,000
Z’s Capital A/c ...Dr. 4,000
To Advertisement Suspense A/c 20,000
(Being the transfer of balance of Advertisement Suspense
to old partners in their old ratio)