Question

$X$ and $Y$ are partners sharing profits in the ratio of $3:2$. On 31st March, 2017 after closing the books of account, their capitals are $Rs.10,00,000$ and $Rs.12,50,000$ respectively. On 1st May, 2016, $X$ had introduced an additional capital of $Rs.2,50,000$ and $Y$ withdrew $Rs.1,25,000$ from his capital. On 1st October, 2016, $X$ withdrew $Rs.5,00,000$ from his capital and $Y$ introduced $Rs.6,25,000$. After closing the accounts, it was discovered that Interest on Capital @ $6\%$ p.a. has been omitted. During the year ended 31st March, 2017, $X^{\prime }s$ drawings and $Y^{\prime }s$ drawings were $Rs.2,50,000$ and $Rs.1,25,000$. Profits (before interest on Capital) during the year were $Rs.5,00,000$.
Calculate 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 10,00,000 12,50,000

Add:-withdrawal of capital 5,00,000 1,25,000

Less:Additional Capital (2,50,000) (6,25,000)

Opening Capital 12,50,000 7,50,000

Calculation of Interest on Capital X Y

Interest on Opening capital 75,000 45,000

(12,50,000*6%) (7,50,000*6%)

Add:Interest on additional capital 13,750 18,750

(2,50,000*6%*11/12) (6,25,000*6%*6/12)

Less:Interest on capital withdrawn (15000) (6875)

[5,00,000*6%*6/12] [1,25,000*6%*11/12]

Total 73750 56875

2. When capitals are Fluctuating :

Calculation of Opening Capital X Y

Closing capital 10,00,000 12,50,000

Add:withdrawal of capital 5,00,000 1,25,000

Drawings 2,50,000 1,25,000

Less:additional capital (2,50,000) (6,25,000)

Less:profits (3,00,000) (2,00,000)

Total 12,00,000 6,75,000

Calculation of interest on capital X Y

Interest on opening capital 72,000 40,500

(12,00,000*6%) (6,75,000*6%)

Add interest on add capital 13,750 18,750

(2,50,000*6%*11/12) (6,25,000*6%*6/12)

Less: Interest on withdrawal ( 15,000) (6875)

(5,00,000*6%*6/12) (1,25,000*6%*11/12)

Total 70750 52,375