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 Rs. 4,80,000 and Rs. 6,00,000 respectively .

On 1st May, 2017, $X$ introduced an additional capital of Rs. 1,20,000 and Y withdrew Rs. 60,000 from his capital. On 1st October, 2017, X withdrew Rs. 2,40,000 from his capital and Y introduced Rs. 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 Rs. 2,40,000 and the partners drawings had been: X- R. 1,20,000 and Y - Rs. 60,000. Compute the interest on capital if the capitals are
(a) fixed, and (b) fluctuating.

Answer 1

1. When Capitals Are Fixed

Calculation of Opening Capital

X Y

Closing capital 4,80,000 6,00,000

Add:withdrawal 2,40,000 60,000

Less: Add capital (1,20,000) (3,00,000)

Opening capital 6,00,000 3,60,000

Calculation of Interest on capital

X Y

Interest on capital 36,000 21,600

Add: Int on add capital 6600 9000

(1,20,000*6%*11/12) (3,00,000*6%*6/12)

Less:Interest on capital ( 7200) (3300)

(2,40,000*6%*6/12) (60,000*6%*11/12)

Total 35,400 27,300

2. When Capitals Are Fluctuating

Calculation of Opening capital

X Y

Closing capital 4,80,000 6,00,000

Add;withdrawal of capital 2,40,000 60,000

Drawings 1,20,000 60,000

Less: Add capital (1,20,000) (3,00,000)

Share of profit (1,44,000) (96,000)

Opening capital 5,76,000 3,24,000

Calculation of Interest on Capital

X Y

Interest on opening capital 34560 19440

Add;Interest on add capital 6600 9000

(1,20,000*6%*11/12) (3,00,000*6%*6/12)

Less: Interest on capital withdrawn (7200) (3300)

Total 33,960 25140