A and B are partners, sharing profits equally. Their fixed capitals were ₹2,00,000 and ₹3,00,000 respectively. Interest on capital as provided under partnership deed @10% p.a was omitted. Select the correct option from the following:
Answer & explanation
Correct answer: option 2
The correct answer is option 2- A capital account will be debited by ₹5,000.
A capital account will be debited by ₹5,000 is the correct statement.
A capital = 2,00,000
B capital = 3,00,000
Interest on capital = 10% p.a.
A's interest = 2,00,000 x 10/100
= 20,000
B's interest = 3,00,000 x 10/100
= 30,000
Total interest = 20,000 + 30,000
= 50,000
This 50,000 is loss for the firm so it is distributed between partners in their profit sharing ratio i.e. 1:1.
A's share in loss = 50,000 x 1/2
= 25,000
B's share in loss = 50,000 x 1/2
= 25,000
Interest on capital is credited to partners capital account whereas loss is debited to partners capital account.
So, A's Capital A/c is credited with 20,000 and debited with 25,000. So net debit with 5,000.
So, B's Capital A/c is credited with 30,000 and debited with 25,000. So net credit with 5,000.
So, journal entry will be-
A's Capital A/c Dr. 5,000
To B's Capital A/c 5,000