Question
GeneralGeneralGeneral

Munna and Sonu were partners in a firm sharing profits and losses in the ratio of 4 : 1. Their fixed capitals were ₹40,00,000 and ₹30,00,000 respectively. During the year ended 31st March, 2025, Munna withdrew ₹50,000 for personal use. Interest on drawings was to be charged at 6% per annum.

The journal entry for charging interest on Munna's drawings will be:

  • (A) Interest on Drawings A/c Dr. ₹1,500 To Munna's Capital A/c ₹1,500
  • (B) Munna's Capital A/c Dr. ₹1,500 To Interest on Drawings A/c ₹1,500
  • (C) Interest on Drawings A/c Dr. ₹1,500 To Munna's Current A/c ₹1,500
  • (D) Munna's Current A/c Dr. ₹1,500 To Interest on Drawings A/c ₹1,500

Verified Answer

Detailed Solution

Interest on drawings is charged when a partner withdraws money from the business for personal use. Since the partner uses the firm's money, the firm charges interest on the amount withdrawn. This interest becomes an income for the firm and is debited to the partner's account.

In the given question, Munna withdrew ₹50,000 during the year. Interest is charged at 6% per annum.

Since the exact date of withdrawal is not mentioned, we assume that the drawings were made evenly throughout the year. Therefore, the average period is taken as 6 months.

Step 1: Calculate Interest on Drawings

Interest on Drawings = Drawings × Rate × Time

= ₹50,000 × 6/100 × 6/12

= ₹50,000 × 0.06 × 0.5

= ₹1,500

Therefore, interest on drawings charged to Munna is ₹1,500.

Step 2: Identify the Correct Account

The question states that the partners maintain fixed capital accounts. Under the fixed capital method:

  • Capital Account remains unchanged.
  • All adjustments such as drawings, interest on drawings, salary, commission, and share of profit are recorded in the Current Account.

Since interest on drawings reduces the partner's claim against the firm, Munna's Current Account will be debited.

Interest on Drawings Account is credited because it is an income for the firm.

Journal Entry

Particulars Debit (₹) Credit (₹)
Munna's Current A/c Dr. 1,500 -
To Interest on Drawings A/c - 1,500

Why Other Options Are Incorrect?

Option A: Incorrect because Interest on Drawings Account should be credited, not debited.

Option B: Incorrect because under the fixed capital method, adjustments are made through the Current Account and not through the Capital Account.

Option C: Incorrect because Interest on Drawings Account cannot be debited when the firm is receiving income.

Option D: Correct because Munna's Current Account is debited and Interest on Drawings Account is credited.

Final Answer

Option (D)

Munna's Current A/c Dr. ₹1,500
To Interest on Drawings A/c ₹1,500