FINAL ACCOUNT : Interest on loan, Investment & Depreciation

12th BOOK KEEPING BY AJAYSANTHOSH MOURYA

1.1.8 Interest on Loan (Outstanding)
Borrowings from banks, financial institutions and outsiders for business are called loans. Amount payable towards interest on loan is an expense for the business.

Example: The trial balance (31.3.2004) shows the following:
Bank loan @ 10% on 1.4.03 Rs. 4,00,000
Interest paid Rs. 14,000
Adjustment: Provide for interest on bank loan outstanding.

 

Interest on loan outstanding will be shown
i) on the debit side of the Profit and Loss account by way of addition to the appropriate interest account and
ii) on the liability side of the Balance sheet by way of addition to the particular loan account. 

 

1.1.9 Interest on Investment:
Interest receivable on investments is an income for the business.
Example: The Trial Balance (31.03.04) shows the following:
Investments @10%                   Rs. 5,00,000
Interest received on investments Rs. 40,000
Adjustment:
Provide for accrued interest on investments Rs.10,000.

 Accrued interest on investments (outstanding interest receivable) will be shown
i) On the credit side of the Profit and Loss account by way of addition to the appropriate interest account and
ii) On the assets side of the balance sheet by way of addition to the investments account.

1.1.10 Depreciation
Depreciation is the reduction in the value of fixed assets due to its use or obsolescence. Generally depreciation is charged at some percentage on the value of fixed asset.
Example: The Trial balance shows the value of furniture on 31.3.2004 as Rs.60,000. Adjustment: Furniture is to be depreciated at 10%.

To bring depreciation into Profit and Loss account the following transfer entry is required.

Depreciation will be shown
i) on the debit side of Profit and Loss account and
ii) on the assets side of the Balance Sheet by way of deduction from the value of concerned asset.