Question

Josh and Krish are partners sharing profits and losses in the ratio of 3:1. Their capitals at the end of the financial year 2015-2016 were Rs. 1,50,000 and Rs. 75,000. During the year 2015-2016, Josh’s drawings were Rs. 20,000 and the drawings of Krish were Rs. 5,000, which had been duly debited to partner’s capital accounts. Profit before charging interest on capital for the year was Rs. 16,000. The same had also been debited in their profit sharing ratio. Krish had brought additional capital of Rs. 16,000 on October 1, 2015. Calculate interest on capital @ 12% p.a. for the year 2015-2016

Answer 1

Given:

• Josh and Krish are partners in a firm sharing profits and losses in the ratio 3:1.
• Their capitals at the end of the financial year were Rs 1,50,000 and Rs 75,000 respectively.
• Their drawings during the year were Rs 20,000 and Rs 5,000 respectively.
• The profit for the year was Rs 16,000.
• Additional capital of Rs 16,000 was introduced by Krish on 1st October, 2015.
• Interest on capital is to be charged at 12% p.a.

To find: The interest on capital for the financial year.

Answer:

Calculation of profit distribution:

Since they share their profits and losses in the ratio 3:1, it will be distributed accordingly.

For Josh:

• Profit share = Rs 16,000 × 3/4 = Rs 12,000

For Krish:

• Profit share = Rs 16,000 ×  1/4 = Rs 4,000

Interest on capital is to be calculated on the opening capital of a partner. However, we're only provided with the closing capital for the year. We need to find the opening capital.

Calculation of opening capitals:

Opening capital = Closing capital + Drawings - Profit - Additional capital

For Josh:

• Opening capital = Rs 1,50,000 + Rs 20,000 - Rs 12,000 = Rs 1,58,000

For Krish:

• Opening capital = Rs 75,000 + Rs 5,000 - Rs 4,000 - Rs 16,000 = Rs 60,000

Calculation of interests on capitals:

Interest on capital = Opening capital × (Rate ÷ 100)

For Josh:

• Interest on capital = Rs 1,58,000 × (12 ÷ 100) = Rs 18,960

For Krish:

His capital from April to September was Rs 60,000.

• Interest [1st April - 30th September] = Rs 60,000 × (12 ÷ 100) × (6 ÷ 12) = Rs 3,600

His capital from October to March was Rs 60,000 + Rs 16,000 = Rs 76,000.

• Interest [1st October - 31st March] = Rs 76,000 × (12 ÷ 100) × (6 ÷ 12) = Rs 4,560

Total interest on capital = Rs 18,960 + Rs 4,560 = Rs 8,160

Therefore, the interests on capitals of Josh and Krish for the year ended 31st March, 2016, are Rs 18,960 and Rs 8,160.

Answer 2

Explanation:

hope it helps you ......