Solve the question

Solution:
(a) Allow interest on capital & deed is silent on treating interest as charge

   Dr                           Profit & Loss Appropriation A/c                                               Cr

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
By interest on capital		By Net Profit	1500
X - 1000
Y - 500	1500
	1500		1500

Working notes-
Interest on X's capital = 20000 x6% = Rs 1200
Interest on Y's capital = 10000 X 6% = Rs 600
Thus total of interest on capital is more than the available profit. The interest on capital is allowed to the extent of available profit  in interest on capital ratio i.e 1200 : 600 or 2:1 to X & Y

(b) Interest is charge against profit
 
  Dr                                Profit & Loss Appropriation A/c                                          Cr

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
By interest on capital		By Net Profit	1500
X - 1200
Y - 600	1800	By Net Loss t/f to
		X- 120
		Y- 180	300
	1800		1800

Working notes -
Interest on X's capital = 20000 x6% = Rs 1200
Interest on Y's capital = 10000 X 6% = Rs 600
When interest on capital is a charge than it is to be allowed whether the firm earns profit or loss