Question

From the following Balance Sheet of $X$ and $Y$, calculate interest on capital $5\%$ pa. for the year ended 31st March, 2018:
During the year ended 31st March, 2018, $X^{\prime }s$ drawings were $Rs.10,000$ and $Y^{\prime }s$ drawings were $Rs.30,000$. Profit for the year ended 31st March, 2018 was $Rs.60,000$. The amount of Reserve, i.e., $Rs.40,000$ is transferred from Current Year's profit to strengthen the financial position of the firm.

Answer 1

Calculation of Interest on $X^{\prime }s$ Capital: $Rs.$
$X^{\prime }s$ Capital as at 31st March, 2018 $90,000$
Add: Drawings made during the year $10,000$
$\overline{1,00,000}$
Less: Profit added (credited) $\left[1/2\right(Rs.60,000-Rs.40,000\left)\right]$ $10,000$
Capital as at 1st April, 2017 $\underset{–}{\overline{90,000}}$
Interest on capital @ $5\%p.a.=Rs.90,000\times \frac{5}{100}=Rs.4,500$.
Calculation of Interest on $Y^{\prime }s$ Capital: $Rs.$
$Y^{\prime }s$ Capital as at 31st March, 2018 $80,000$
Add: Drawings made during the year $30,000$
$\overline{1,10,000}$
Less: Profit added (credited) $\left[1/2\right(Rs.60,000-Rs.40,000\left)\right]$ $10,000$
Capital as at 1st April, 2017 $\underset{–}{\overline{1,00,000}}$
Interest on capital @ $5\%p.a.=Rs.1,00,000\times \frac{5}{100}=Rs.5,000$.
Notes:
1. capital in the beginning is calculated by adding drawings and deducting profit distributed.
2. Profit during the year was $Rs.60,000$ out of which $Rs.40,000$ is transferred to Reserve and is shown in the Balance sheet. Thus, in effect, only $Rs.20,000$ were distrubuted which have been deducted.
3. In the absence of any profit-sharing ratio being given, partners will share profit and loss equally.