Question

Raj and Neeraj are partners in a firm. Their capitals as on April 01, 2005 were Rs 2,50,000 and Rs 1,50,000, respectively. They share profits equally. On July 01, 2005, they decided that their capitals should be Rs 1,00,000 each. The necessary adjustment in the capitals were made by introducing or withdrawing cash by the partner's. Interest on capital is allowed @ 8% pa. Compute interest on capital for both the partners for the year ending on March 31, 2006.

Answer 1

Interest on capital can be calculated by Product methods as well as simple method.

Raj's Interest on Capital (By Product Method)

1 April 2005 to 30 June, 2005 $2,50,000\times 3$ 7,50,000
1 July 2005 to 31 March,2006 $1,00,000\times 9$ 9,00,000
_________
16,50,000
_________

Interest = Sum of Product $\times Rate\times \frac{1}{12}$

$=16,50,000\times \frac{8}{100}\times \frac{1}{12}$

$=Rs11,000$

Neeraj's Interest on Capital (By Simple Method)

$=(1,50,000\times \frac{8}{100}\times \frac{3}{12})+(1,00,000\times \frac{8}{100}\times \frac{9}{12})$

$=3,000+6,000$

$=Rs9,000$