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Calculation of Interest on Capital;

If part of the capital is withdrawn during the year, interest on the part of the
capital that was invested for the whole year, interest is calculated for the
whole year and it is added with the amount of interest that is calculated on
the remaining capital that was invested for the relevant period. For example,
Anmol has Rs. 30,000 as balance in his capital account at the beginning of
the year. In the middle of the year he withdrew Rs.10,000 from his capital.
He is entitled for interest @ 10% p.a.
In this case, interest will be calculated in the following manner:
(20,000 10/100) + (10,000 10/100 1/2) = Rs. 2,500;
Alternatively, we can calculate interest on capital with respect to the amount
remained invested for the relevant period. In the above example, the interest
may also be calculated as follows: (30,000 10/100 1/2) + (20,000
10/100 1/2) = Rs. 2,500.

Illustration;
Mansoor and Reshma are partners in a firm. Their capital accounts showed
the balance on Jan 1, 2000 as Rs. 20,000 and Rs. 15,000 respectively.During
the year, Mansoor introduced additional capital of Rs.10,000 on May 1, 2000
and Reshma brought in further capital of Rs.15,000 on July 1, 2000. Reshma
withdrew Rs. 5,000 from her capital on October 1, 2000. Interest is allowed
@ 6% p.a. on the capitals. Calculate the interest to be paid on the capital.
Statement showing calculation of interest
Particulars
1.

2.

3.

Interest on capital balance on


Jan 1, 2000:
Mansoor (20,0006/100)
Reshma (15,0006/100)
Add interest on additional capital:
Mansoor (10,0006/1008/12)
Reshma (15,0006/1006/12)
Less: Interest on capital withdrawn
by Reshma (50003/126/100)
Total Interest Payable

Mansoor
Rs.

Reshma
Rs.

1,200
900
400
450
(75)
1,600

1,275

FORMATS: Financial Statements (Final Accounts) of a


Partnership business;
Income Statement (Trading and Profit and Loss Account) for the year ended
Amou
Particulars
nt
Amount
Amount
Revenue (sales)
xxxx
Less Sales returns
xxxx
Net Sales
xxxx
Less Cost of sales;
Inventory (opening stock)
Xxxx
Purchases
xxxx
Less Purchases returns
xxxx
Less Goods for own use
xxxx
Carriage inwards
xxxx
Xxxx
Less Inventory (closing stock)
Xxxx
(xxxx)
Net profit
Xxxx
Add Other income;
Discount received
xxxx
Rent received
xxxx
Commission received
xxxx
*Profit on disposal of fixed assets
xxxx
**Reduction in provision for doubtful
debts
xxxx
Less Expenses;
xxxx
Wages and salaries
Xxxx
Office expenses
Xxxx
Rent and rates
Xxxx
Insurance
Xxxx
Office expenses
Xxxx
Motor vehicle expenses
Xxxx
Selling expenses
Xxxx
Loan interest
Xxxx
*Loss on disposal of fixed assets
Xxxx
**Provision for doubtful debts
Xxxx
Depreciation of fixtures and fittings
Xxxx
Depreciation of office equipment
Xxxx
Depreciation of motor vehicles
Xxxx
xxxx

If only one asset was sold during the year only one of these items will
appear
** If the provision reduces, the surplus amount is added to the gross
profit: if the provision increases,
the amount required is included in the expenses
*** If the expenses exceed the gross profit plus other income the
resulting figure is described as a net loss
Partnership (Name)
Profit and Loss Appropriation Account for the year ended
.

Particulars
Net profit/loss
(carried down from income
statement)
Add: *Interest on drawings Partner
A Xxxx
Partner B
Less **Interest on capital Partner A
Partner B
Less **Partners salary Partner A / B

Profit/loss shares
Partner A
Partner B

Amoun
t$

Amoun
t$

xxxx
xxxx

Amount
$
xxxx

xxxx

xxxx
xxxx
xxxx
xxxx

xxxx
xxxx

xxxx
xxxx

xxxx