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Question

Simrat and Bir are partners in a firm sharing profits and losses in the ratio of 3 : 2. On 31st March, 2019 after closing the books of account, their Capital Accounts stood at ₹ 4,80,000 and ₹ 6,00,000 respectively. On 1st May, 2018, Simrat introduced an additional capital of ₹ 1,20,000 and Bir withdrew ₹ 60,000 from his capital.On 1st October, 2018, Simrat withdrew ₹ 2,40,000 from her capital and Bir introduced ₹ 3,00,000. Interest on capital is allowed at 6% p.a. Subsequently, it was noticed that interest on capital @ 6% p.a. had been omitted. Profit for the year ended 31st March, 2019 amounted to ₹ 2,40,000 and the partners' drawings had been: Simrat – ₹ 1,20,000 and Bir – ₹ 60,000. Compute the interest on capital if the capitals are (a) fixed, and (b) fluctuating.

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Solution

Case 1: If Capitals are fixed:

Calculation of Interest on Capital

Interest on CapitalSimrat=6,00,000×6×1100×12+7,20,000×6×5100×12+4,80,000×6×6100×12=35,400Bir=3,60,000×6×1100×12+3,00,000×6×5100×12+6,00,000×6×6100×12=₹ 27,300

Working Notes:

WN1: Calculation of Opening Capital:

Particulars

Simrat

Bir

Capital at the end

4,80,000

6,00,000

Add: Drawings out of capital

2,40,000

60,000

Less: Fresh capital introduced

1,20,000

3,00,000

Capital at the beginning

6,00,000

3,60,000

Case2: If Capitals are Fluctuating:

Calculation of Interest on Capital

Interest on CapitalSimrat=5,76,000×6×1100×12+6,96,000×6×5100×12+4,56,000×6×6100×12=₹ 33,960Bir=3,24,000×6×1100×12+2,64,000×6×5100×12+5,64,000×6×6100×12=₹ 25,140


Working Notes:

WN1: Calculation of Opening Capital:

Particulars

Simrat

Bir

Capital at the end

4,80,000

6,00,000

Add: Drawings out of capital

2,40,000

60,000

Add: Drawings out of profit

1,20,000

60,000

Less: Fresh capital introduced

1,20,000

3,00,000

Less: Profit already credited

1,44,000

96,000

Capital at the beginning

5,76,000

3,24,000


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