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Appropriation of Profits

Ram and Mohan...

Question

Ram and Mohan are partners in a business. Their capitals at the end of the year were ₹ 24,000 and ₹ 18,000 respectively. During the year, Ram's drawings and Mohan's drawings were ₹ 4,000 and ₹ 6,000 respectively. Profit (Before charging interest on capital) during the year was ₹ 16,000. Calculate interest on capital @ 5% p.a. for the year ended 31st March, 2018.

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Solution

Interest on capital is calculated on the opening balance of partner’s capital.

Calculation of Capital balance at the beginning

Particulars

Ram

Mohan

Capital at the end

24,000

18,000

Less: Profit already credited (1:1)

(8,000)

(8,000)

Add: Drawings already debited

4,000

6,000

Capital at the beginning

20,000

16,000

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