Explanation
Commission payable = 10% on Net Profit (after charging the commission)
If Net Profit is Rs. 100, Commission payable = Rs. 10
Thus profit before charging the commission = 100 + 10 = 110
Of Rs. 110, Rs. 10 is commission payable and the balance Rs. 110- Rs. 10 = Rs. 100 is the profit, left after charging the commission.
Here Rs. 2.200 is equal to 110%
Therefore 10% = 2,200/110 x 10 =Rs. 200
Interest on capital is a charge on the profits of a firm and it is debited to the P&L account to recognise as an expense (and a charge on the profits).
Interest on capital is to be calculated on the capitals at the beginning for the relevant period. If there is any additional capital introduced or capital withdrawn during the year, it will cause change in the capitals and interest is to be calculated proportionately on the changed capitals for the relevant period.
Interest on capital = Amount of capital x Rate of interest per annum x Period of interest
Interest on capital is a charge on the profits of a firm and it decreases the net available profit for appropriation.
The Outstanding Expense A/c appears on the liability side of the Balance Sheet. While preparing the Trading and Profit and Loss A/c we need to add the amount of outstanding expense to that particular expense.
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