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When the profit is insufficient how to calculate interest on capital? Whether using PSR or ratio of partner's capital contribution like in the case of NCERT. Accountancy book chapter -2 pg.81 illustration 6 Please anyone help me?
Ratio of partner's capital means like- A,B partners with psr 3:4 Capitals of partners
A-5,00,000 B-10,00,000 Then ratio is 1:2?
Ratio of partner's capital means like- A,B partners with psr 3:4 Capitals of partners
A-5,00,000 B-10,00,000 Then ratio is 1:2?
Most Upvoted Answer
When the profit is insufficient how to calculate interest on capital? ...
Calculation of Interest on Capital when Profit is Insufficient
When a partnership firm is unable to earn sufficient profits to pay interest on partners' capital, the interest on capital is calculated using one of the following methods:
1. Using the Partnership Deed
The partnership deed usually contains provisions regarding the calculation of interest on partners' capital. The interest rate, calculation method, and frequency of payment are all specified in the partnership deed.
2. Using the Ratio of Partner's Capital Contribution
If the partnership deed does not contain provisions for the calculation of interest on capital, the interest can be calculated based on the ratio of partners' capital contribution. The steps involved in this method are:
- Determine the ratio of partners' capital contribution
- Calculate the total capital of the firm
- Determine the amount of interest to be paid on capital
- Calculate the interest on each partner's capital based on their contribution ratio
For example, if A and B are partners with a PSR of 3:4 and their capital contributions are A-5,00,000 and B-10,00,000, then the ratio is 1:2 as follows:
- A's capital contribution = 5,00,000
- B's capital contribution = 10,00,000
- Total capital = 15,00,000
- Interest to be paid on capital = 50,000 (assuming a 10% interest rate)
- A's interest on capital = (1/3) x 50,000 = 16,666.67
- B's interest on capital = (2/3) x 50,000 = 33,333.33
In conclusion, the method used to calculate interest on capital when profits are insufficient depends on the provisions of the partnership deed and the agreement between partners. If the partnership deed does not contain provisions for the calculation of interest on capital, the ratio of partners' capital contribution can be used to determine the interest payable to each partner.
When a partnership firm is unable to earn sufficient profits to pay interest on partners' capital, the interest on capital is calculated using one of the following methods:
1. Using the Partnership Deed
The partnership deed usually contains provisions regarding the calculation of interest on partners' capital. The interest rate, calculation method, and frequency of payment are all specified in the partnership deed.
2. Using the Ratio of Partner's Capital Contribution
If the partnership deed does not contain provisions for the calculation of interest on capital, the interest can be calculated based on the ratio of partners' capital contribution. The steps involved in this method are:
- Determine the ratio of partners' capital contribution
- Calculate the total capital of the firm
- Determine the amount of interest to be paid on capital
- Calculate the interest on each partner's capital based on their contribution ratio
For example, if A and B are partners with a PSR of 3:4 and their capital contributions are A-5,00,000 and B-10,00,000, then the ratio is 1:2 as follows:
- A's capital contribution = 5,00,000
- B's capital contribution = 10,00,000
- Total capital = 15,00,000
- Interest to be paid on capital = 50,000 (assuming a 10% interest rate)
- A's interest on capital = (1/3) x 50,000 = 16,666.67
- B's interest on capital = (2/3) x 50,000 = 33,333.33
In conclusion, the method used to calculate interest on capital when profits are insufficient depends on the provisions of the partnership deed and the agreement between partners. If the partnership deed does not contain provisions for the calculation of interest on capital, the ratio of partners' capital contribution can be used to determine the interest payable to each partner.
Community Answer
When the profit is insufficient how to calculate interest on capital? ...
Interest will be allowed to each partners on the capital contributed by him. ...interest on capital is an expense to the firm and is debited to the profit and loss appropriations account. interest is payable to the partners and hence the partners capital account is credited with the amount of interest.
interest on capital= amount of * rate of interest
interest on capital= amount of * rate of interest
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When the profit is insufficient how to calculate interest on capital? Whether using PSR or ratio of partner's capital contribution like in the case of NCERT. Accountancy book chapter -2 pg.81 illustration 6 Please anyone help me?Ratio of partner's capital means like- A,B partners with psr 3:4 Capitals of partners A-5,00,000 B-10,00,000 Then ratio is 1:2?
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When the profit is insufficient how to calculate interest on capital? Whether using PSR or ratio of partner's capital contribution like in the case of NCERT. Accountancy book chapter -2 pg.81 illustration 6 Please anyone help me?Ratio of partner's capital means like- A,B partners with psr 3:4 Capitals of partners A-5,00,000 B-10,00,000 Then ratio is 1:2? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about When the profit is insufficient how to calculate interest on capital? Whether using PSR or ratio of partner's capital contribution like in the case of NCERT. Accountancy book chapter -2 pg.81 illustration 6 Please anyone help me?Ratio of partner's capital means like- A,B partners with psr 3:4 Capitals of partners A-5,00,000 B-10,00,000 Then ratio is 1:2? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for When the profit is insufficient how to calculate interest on capital? Whether using PSR or ratio of partner's capital contribution like in the case of NCERT. Accountancy book chapter -2 pg.81 illustration 6 Please anyone help me?Ratio of partner's capital means like- A,B partners with psr 3:4 Capitals of partners A-5,00,000 B-10,00,000 Then ratio is 1:2?.
When the profit is insufficient how to calculate interest on capital? Whether using PSR or ratio of partner's capital contribution like in the case of NCERT. Accountancy book chapter -2 pg.81 illustration 6 Please anyone help me?Ratio of partner's capital means like- A,B partners with psr 3:4 Capitals of partners A-5,00,000 B-10,00,000 Then ratio is 1:2? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about When the profit is insufficient how to calculate interest on capital? Whether using PSR or ratio of partner's capital contribution like in the case of NCERT. Accountancy book chapter -2 pg.81 illustration 6 Please anyone help me?Ratio of partner's capital means like- A,B partners with psr 3:4 Capitals of partners A-5,00,000 B-10,00,000 Then ratio is 1:2? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for When the profit is insufficient how to calculate interest on capital? Whether using PSR or ratio of partner's capital contribution like in the case of NCERT. Accountancy book chapter -2 pg.81 illustration 6 Please anyone help me?Ratio of partner's capital means like- A,B partners with psr 3:4 Capitals of partners A-5,00,000 B-10,00,000 Then ratio is 1:2?.
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When the profit is insufficient how to calculate interest on capital? Whether using PSR or ratio of partner's capital contribution like in the case of NCERT. Accountancy book chapter -2 pg.81 illustration 6 Please anyone help me?Ratio of partner's capital means like- A,B partners with psr 3:4 Capitals of partners A-5,00,000 B-10,00,000 Then ratio is 1:2?, a detailed solution for When the profit is insufficient how to calculate interest on capital? Whether using PSR or ratio of partner's capital contribution like in the case of NCERT. Accountancy book chapter -2 pg.81 illustration 6 Please anyone help me?Ratio of partner's capital means like- A,B partners with psr 3:4 Capitals of partners A-5,00,000 B-10,00,000 Then ratio is 1:2? has been provided alongside types of When the profit is insufficient how to calculate interest on capital? Whether using PSR or ratio of partner's capital contribution like in the case of NCERT. Accountancy book chapter -2 pg.81 illustration 6 Please anyone help me?Ratio of partner's capital means like- A,B partners with psr 3:4 Capitals of partners A-5,00,000 B-10,00,000 Then ratio is 1:2? theory, EduRev gives you an
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