Montu and Raju contribute ₹32,000 and ₹16,000 respectively towards their capital. They decide to allow interest on capital@9%p.a. Their share of profits is 3:2and net profit for the year ending 31st March,2021 before charging interest is ₹2, 700. Show distribution of profits :
(a) When there is no agreement except for interest on capitals ; and
(b) When there is an agreement that interest on capital be treated as charge.
Answers
Answer:
Calculation of interest on capital.
Interest on X capital
20,000×
100
6
=Rs1200
Interest on Y's capital
10,000×
100
6
=Rs600
Total interest (1200+600)=Rs1800
Total profits available = Rs.1500
As total interest on capital is more than total profits, so profits of Rs 1500 to be distributed between X & Y as per their interest on capital ratio.
X:Y
Interest on capital = 1200:600 or 2:1
∴ X share = 1500×
3
2
=Rs1000
Y share = 1500×
3
1
=Rs500
Part (ii)
When interest on capital is charge, complete interest on capital will be charged.
Total interest = Rs. 1800
Total Profit = Rs. 1500
There is loss of Rs. 300. This loss of Rs. 300 will be distributed between X and Y in 2:3 ratio.
X share of loss = 300*2/5 = Rs. 120
Y share of loss = 300*3/5 = Rs. 180.
Explanation:
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