Partnership

Accounting

Easy

common

Correct Journal entry for transferring interest on capital to Profit and Loss Appropriation Account is-

Profit and Loss Appropriation A/c Dr. To Interest on Capital A/c

Interest on Capital A/c Dr. To Partner's Capital/Current A/cs

Interest on Capital A/c Dr. To Profit and Loss Appropriation A/c

Partners Capital/Current A/c's Dr. To Interest on Capital A/c

✅ Correct Option: 1

Interest on capital is an appropriation of profit, not a charge against profits. It represents the amount to be paid to partners for the capital they have invested in the firm.

When recording interest on capital through an intermediary account (Interest on Capital A/c), two entries are required:

First Entry - Transferring to P&L Appropriation Account:

Account	Debit (₹)	Credit (₹)
Profit and Loss Appropriation A/c Dr.	xxx
To Interest on Capital A/c		xxx

This entry debits the Profit and Loss Appropriation Account because interest on capital is an application of profit. The Interest on Capital Account is credited as it represents the liability to be paid to partners.

Second Entry - Transferring to Partners:

Account	Debit (₹)	Credit (₹)
Interest on Capital A/c Dr.	xxx
To Partners' Capital/Current A/cs		xxx

This entry closes the Interest on Capital Account and credits the individual partners' accounts with their respective interest amounts.

The question specifically asks about the entry for transferring interest to the Profit and Loss Appropriation Account, which is the first entry shown above.

Correct Option: 1 - Profit and Loss Appropriation A/c Dr. To Interest on Capital A/c

2025: 30 May Shift 2

A partnership deed usually doesn't contain the following details:

2025: 30 May Shift 1

If there are some accumulated losses in the form of a debit balance of profit and loss account appearing in the balance sheet of the firm. It should be transferred to:

2025: 22 May Shift 1

Ram and Laxman started business on 1st Jan 2020 with a capital of Rs 1,20,000 and Rs 80,000 respectively. Ram introduced Rs. 50,000 to the firm on 1st July 2020 as additional capital. If the rate of interest is 15% p.a. Assuming that accounts are closed as per calender year then the Interest payable to Ram on Capital would be:

2023: 20 June Shift 2

Salary of a partner is shown in

2026: 13 May Shift 1

Marry and Kayli were two partners sharing profits and losses in the ratio 5 : 7. Kayli was in need of funds, so she took a loan of Rs. 4,00,000 from the firm at an agreed rate of interest being 8% p.a. If Interest is charged on loan from the partner, it will be:

2026: 6 June Shift 1

Deepti, Vinay and Himani are partners in a firm sharing profits and losses in the ratio of 3:3:2. They decided to share the profits equally w.e.f. April 01, 2025. Firm's Goodwill is Rs. 90,000. What is the share of each of the sacrificing partner to be recieved from the gaining partner?

Correct Journal entry for transferring interest on capital to Profit and Loss Appropriation Account is-

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