Question

A and B are partners sharing profits and losses in the ratio of 3 : 1. Their capitals at the end of the financial year 2016-17 were Rs 6,00,000 and Rs 3,00,000. During the year 2016-2017, A's drawings were Rs 80,000 and the drawings of B were Rs 40,000, which had been duly debited to partner's capital accounts. Profit before charging interest on capital for the year was Rs 80,000. The same had also been credited in their profit sharing ratio. B had brought additional capital of Rs 70,000 on October 1, 2016. Calculate interest on capital @ 12% p.a. for the year 2016-17.

Answer 1

Since interest on capital is always calculated on opening capitals and opening capitals are not given in the question, it is necoscary to calculate the opening capitals :

Statement showing the calculation of Capitals in the beginning :

$\begin{array}{ccc}\text{Particulars}& A\left(Rs\right)& B\left(Rs\right)\\ \text{Capitals at the end, i.e., on 31st March 2017}& 6,00,000& 3,00,000\\ \text{Add: Drawings (which were previously deducted)}& 80,000& 40,000\\ & \overline{6,80,000}& \overline{3,40,000}\\ \text{Less: Share of Profit (which has already been added)}& & \\ \text{Rs 80,000 credited in the ratio of 3 : 1}& 60,000& 20,000\\ & \overline{6,20,000}& \overline{3,20,000}\\ \text{Less: Additional Capital}& & 70,000\\ \text{Capitals in the beginning i.e., on 1st April 2016}& \overline{6,20,000}& \overline{2,50,000}\end{array}$

Interest on Capital:

$\begin{array}{cc}A:12\%\text{on Rs}6,20,000& =Rs\underset{–}{74,400}\\ B:12\%\text{on Rs}2,50,000\text{for one year}& =Rs30,000\\ +12\%\text{on Rs}70,000\text{for six months}70,000\times \frac{12}{100}\times \frac{6}{12}& =Rs4,200\\ & \underset{–}{\overline{34,200}}\end{array}$