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Partnership - Fundamentals

Dr.Jagadeeswaran
07 Mar 0 0
  1. Calculation of Interest on Capital:

 

            Interest on Capital = Amount of capital x Rate of Interest

                                                                                      100

 

          Amount of Capital = Opening Capital – Drawings

          Proportionate interest should be calculated for Drawings and additional capital.

 

 

        Journal Entries:

  1. a) For providing Interest on capital:

            Interest on Capital   A/c            Dr

                  To Partner’s Capital A/c

            (Interest on capital provided)

 

 

  1. b) For Transferring:

            P & L Appropriation A/c          Dr

                   To Interest on capital A/c

            (Interest on capital transferred)

 

 

  • Calculation of Interest on Drawings:
  1. Average Period Method

 

            Interest on Drawings = Total drawings x Rate of Interest x Average   period

 

Average Period:

  1. If beginning of the month = 13/24
  2. If middle of the month  = 12/24
  3. If end of the month  = 11/24
  4. If beginning of the quarter = 15/24
  5. If middle of the quarter = 12/24
  6. If end of the quarter =   9/24
  7. If beginning of year =   9/12
  8. If middle of the year =   6/12
  9. If end of the year =   3/12

 

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