Question

On March 31st, 2015 after the close of books of accounts the capital accounts of Ram, Shyam and Mohan showed balance of * 24,000, *18,000 and 12,000, respectively. It was later discoverd that interest on capital @ 5% had been omitted. The profit for the year ended 315 March 2015, amounted to 36,000 4 the partners drawings had been Ram, 73,600 Shyam * 4,500 and Mohan, 2,700. The profit sharing ati 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.

To find: The interest on capital.

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.

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

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

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

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

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

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

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