A and B are equal partners with capitals of 2,00,000 and 1,00,000 respectively. As per deed, they are allowed interest on capital @ 8% p.a. During the year, the firm earned a profit of 12,000. Pass necessary Journal entries for the above transactions in the books of A and B. Also show your worki

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In this scenario, A and B are equal partners, and the capital amounts are missing. However, based on the information provided, they are allowed interest on their capital at 8% p.a. Let’s go step by step:

1. Calculate Interest on Capital:

   • Assuming capital amounts for A and B, let's denote them as A's Capital = X and B's Capital = Y.
   • Interest for A = 8% of X.
   • Interest for B = 8% of Y.

2. Determine Profit Distribution:

   • Total profit = 12,000.
   • Interest on capital is first charged to the profits.
   • Subtract the interest from the profits and distribute the remaining profit equally between A and B.

3. Journal Entries in the Books of A and B:

Interest on Capital:

• Debit: Profit and Loss Account (Interest on A’s Capital)

• Credit: A’s Capital Account (Interest on Capital)

• Debit: Profit and Loss Account (Interest on B’s Capital)

• Credit: B’s Capital Account (Interest on Capital)

Make sure to calculate the exact interest and remaining profit to pass the correct entries. For more guidance, feel free to visit our website.