Partnership - Fundamentals

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