Question

X and Y are partners in a firm sharing profits and losses in the ratio of 3 : 2 . On 31st March, 2018 after closing the books of account, their Capital Accounts stood at ₹ 4,80,000 and ₹ 6,00,000 respectively. On 1st May, 2017, X introduced an additional capital of ₹ 1,20,000 and Y withdrew ₹ 60,000 form his capital.On 1st October, 2017, X withdrew ₹ 2,40,000 from his capital and Y introduced ₹ 3,00,000 . Interest on capital is allowed at 6% p.a. Subsequently, it was discovered that interest on capital @ 6% p.a. had been omitted. The profits for the year ended 31st March, 2018 amounted to ₹ 2,40,000 and the partners' drawings had been: X–₹1,20,000 and Y–₹ 60,000. Compute the interest on capital if the capitals are (a) fixed, and (b) fluctuating.

Answer 1

Case 1: If Capitals are fixed:

Calculation of Interest on Capital

$\begin{array}{l}\text{Interest on Capital}\\ \text{X}=\frac{6,00,000\times 6\times 1}{100\times 12}+\frac{7,20,000\times 6\times 5}{100\times 12}+\frac{4,80,000\times 6\times 6}{100\times 12}=\text{Rs 35,400}\\ \text{Y}=\frac{3,60,000\times 6\times 1}{100\times 12}+\frac{3,00,000\times 6\times 5}{100\times 12}+\frac{6,00,000\times 6\times 6}{100\times 12}=\text{Rs 27,300}\end{array}$

Working Notes:

WN1: Calculation of Opening Capital:

Particulars	X	Y
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

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Case2: If Capitals are Fluctuating:

Calculation of Interest on Capital

$\begin{array}{l}\text{Interest on Capital}\\ \text{X}=\frac{5,76,000\times 6\times 1}{100\times 12}+\frac{6,96,000\times 6\times 5}{100\times 12}+\frac{4,56,000\times 6\times 6}{100\times 12}=\text{Rs 33,960}\\ \text{Y}=\frac{3,24,000\times 6\times 1}{100\times 12}+\frac{2,64,000\times 6\times 5}{100\times 12}+\frac{5,64,000\times 6\times 6}{100\times 12}=\text{Rs 25,140}\end{array}$

Working Notes:

WN1: Calculation of Opening Capital:

Particulars	X	Y
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