Question

On March 31, 2003, after the close of books of accounts, the capital accounts of Ram, Shyam and Mohan showed balance of Rs. 24,000 Rs. 18,000 and Rs. 12,000, respectively. It was later discovered that interest on capital @ 5% had been omitted. The profit for the year ended March 31, 2003, amounted to Rs. 36,000 and the partner’s drawings had been Ram, Rs. 3,600; Shyam, Rs. 4,500 and Mohan, Rs. 2,700. The profit sharing ratio of Ram, Shyam and Mohan was 3:2:1. Calculate interest on capital.​

Answer 1

Given data:

• The closing balances of Ram, Shyam and Mohan were Rs 24,000, Rs 18,000 and Rs. 12,000.

• Interest on capital @ 5% p.a. had been omitted.

• The profit for the year was Rs 36,000.

• The drawings of Ram, Shyam and Mohan were Rs 3,600, Rs 4,500 and Rs 2,700.

• The partners shared profits/losses in the ratio 3:2:1.

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To find:

The interest on capital.

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$\mapsto$Answer :-

Let's first calculate the profit share of each partner.

The profit for the year was Rs 36,000. Since the firm shares profits/losses in the ratio 3:2:1, they must be distributed among the partners accordingly.

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For Ram:

• Profit share = Rs 36,000 × 3/6 = Rs 18,000

For Shyam:

• Profit share = Rs 36,000 × 2/6 = Rs 12,000

For Mohan:

• Profit share = Rs 36,000 × 1/6 = 6,000

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Interest on capital is calculated using the opening balance/opening capital of the firm. As per the question, only the closing capitals have been mentioned. We must find the opening capital.

Opening capital = Closing capital + Drawings - Profit

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For Ram:

• Opening capital = Rs 24,000 + Rs 3,600 - Rs 18,000 = Rs 9,600

For Shyam:

• Opening capital = Rs 18,000 + Rs 4,500 - Rs 12,000 = Rs 10,500

For Mohan:

• Opening capital = Rs 12,000 + Rs 2,700 - Rs 6,000 = Rs 8,700

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Now that we have the opening capitals, we can calculate the omitted interest on capital.

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

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For Ram:

• Interest on capital = (Rs 9,600 × 5)/100 = Rs 480

For Shyam:

• Interest on capital = (Rs 10,500 × 5)/100 = Rs 525

For Mohan:

• Interest on capital = (Rs 8,700 × 5)/100 = Rs 435

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Therefore, the interests on capitals for Ram, Shyam and Mohan are Rs 480, Rs 525 and Rs 435 respectively.