Miscellaneous expenditure in the balance sheet The expenses that are written off in the current financial year are shown on the debit side of the profit and loss account. However, those that are not written off during the current financial year are shown in the balance sheet on the Assets Side as MiRead more
Miscellaneous expenditure in the balance sheet
The expenses that are written off in the current financial year are shown on the debit side of the profit and loss account. However, those that are not written off during the current financial year are shown in the balance sheet on the Assets Side as Miscellaneous expenditure.
Miscellaneous expenditure are those expenses that are not categorized as Operating expenses i.e. these are not classified as manufacturing, selling, and administrative expenses.
For example, BlackRock has spent 5,00,000 which will be written of in 5 consecutive years as an Advertisement expense. During the current financial year, only 1,00,000 will be written off and the rest will be carried to the next year and year thereafter.
Treatment in the first year:
- 1,00,000 which is written off during the current financial year will be shown on the debit side of the Profit and Loss account.
- 4,00,000 which is carried forward will be shown on the assets side of the balance sheet as miscellaneous expenditure because all assets and expenses have a debit balance.
Treatment in the second year:
- 1,00,000 which is written off during the current financial year will be shown on the debit side of the Profit and Loss account.
- 4,00,000 which is carried forward will be shown in the assets side of the balance sheet as a miscellaneous expenditure.
The same will be done in the third, fourth, and fifth years.
Conclusion
Deferred revenue expenditure is also a long-term expenditure the benefit of which cannot be derived within the same year. So the amount that is written off during the current year is shown on the debit side of the profit and loss account and the amount which is not written off during the current financial year is shown on the assets side under the head Miscellaneous expenditure.
See less
Interest on capital is the interest provided on the capital invested in the business. It is calculated as a percentage on the capital invested. Interest on capital is provided if there is any rule established by the owner of the capital. Otherwise, it is not provided. We generally encounter ‘InteresRead more
Interest on capital is the interest provided on the capital invested in the business. It is calculated as a percentage on the capital invested. Interest on capital is provided if there is any rule established by the owner of the capital. Otherwise, it is not provided.
We generally encounter ‘Interest on capital’ in partnership accounting but a sole proprietorship can also provide interest on capital.
Interest on capital is charged or appropriated from the profits of the firm. Hence, it appears on the debit side of the profit and loss account.
The journal entry is as follows:
The partners, in case the firm makes profit, are provided interest on their capital balance apart from their share of profit if provision of interest on capital is mentioned in the partnership deed.
Hence, interest on capital is an appropriation of profit in partnership accounting. The journal in case of partnership account is as follows:
The Interest on capital is credited to the capital/ partners’ capital account thereby increasing the capital balance. The journal is as follows:
In the balance sheet it is shown as an addition to the capital account.
Numerical example
P, Q and R are partners. Their firm reported a net profit of ₹ 20,000. Their capitals are ₹30,000, ₹45,000 and ₹60,000. It is in their partnership deed to provide the partners 4% interest on capital and a salary of ₹5,000 per annum for Q. Calculate the interest on capital.
Solution:
Interest on capital to be provided to the partners:
P – ₹30,000 x 6% = ₹1,800
Q – ₹45,000 x 6% = ₹2,700
R – ₹60,000 x 6% = ₹3,600
This interest will be credited to the partners’ capital. The journals are as follows:
See less