On Jan 1, 2010 Ram Gopal invested Capital of Rs. 50,000. He withdrew Rs. 2,000 on the first day of each month interest on drawings is provided @ 10%. The amount of interest on drawings deducted from Capital will be _________
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Solution
Where interest on drawings is charged it is usually calculated at fixed rate percent from the date of each drawing to the date the accounts are closed. If the dates on which the amounts are drawn are not given, interest is calculated on the whole amount on the assumption that the money was drawn evenly throughout the year. The amount of interest is debited to proprietor’s drawings accounts and is credited to the interest on drawings amount. At the close of the accounting period the interest on drawings accounts is closed by transfer to the profit and loss account.
It may, however, be noted that if the withdrawals are of uniform amount and are made at regular
intervals, then interest on drawings can be calculated on the total of the amount drawn, for the average of the periods applicable to first and last installment. Therefore, if drawings are made at the beginning of each month, interest should be calculated on the whole amount for 6 and half months.Here Ram Gopal withdrew Rs. 2,000 on the first day of each month interest on drawings is provided @10%.
So interest on drawings will be = 10% of (2000 × 12) × 6.5/12 = Rs. 1,300.
Interest on drawing is ______ for the business
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Solution
Interest on capital is an expense but interest on drawings is an income/gain for the firm.
Fixed capital A/c is credited with _______
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Solution
Fixed capital account is not credited with interest, profit or salary of partner. Fluctuating capital account is credited with all these items.
A cheque of Rs. 2,500 received for loss of inventory by fire has been deposited by proprietor into his private bank account and has not recorded in the business book. The rectifying entry will be
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Solution
For rectification, we need to credit Insurance company (receipt of claim) and debit drawings a/c as proprietor has deposited this cheque in his personal account.
Depreciation on machinery in trial balance is recorded in ____________
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Solution
Depreciation on machinery is recorded in P&L A/c as it is an expense.
A, B & C entered into a partnership sharing profits & losses at the ratio of 5:3:2. A retired & B and C agreed to share profits & losses in the ratio of 3:2. General reserve balance was Rs 10,000. Balance of general reserve will be transferred to partners’ capital accounts in the ratio of:
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Solution
General reserve will be transferred to old partners in the old profit sharing ratio.
Which one of the following is correct-
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Solution
‘Closing inventory’ means goods lying unsold at the end of previous accounting period or at beginning of current accounting period.
Profit and loss on revaluation is shared among the partners in ________ ratio.
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Solution
Profit/loss on revaluation is shared among partners in old profit sharing ratio.
Following are the factors which affects goodwill except:
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Solution
Location of business, nature of business, technical know-how all affect goodwill except management
efficiency.
Income is reflected in the form of –
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Solution
Income is reflected in form of inflow of assets or decrease of liabilities.
An economic event that involves transfer of money or money’s worth is-
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Solution
Financial transaction involves transfer of money or money’s worth.