Question

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Q. 11 (B). A and B are partners in a firm. Their capitals as on 1st April, 2016 were
2,10,000 and 590,000 respectively. They share profits in the ratio of 2 : 1. On Ist
August, 2016, they decided that their capitals should be readjusted according to their
profit sharing ratio. The necessary adjustments in the capitals were made by
withdrawing or introducing cash. Interest on capital is allowed at 12% p.a. Compute
interest on capitals for the year ending on 31st March, 2017,​

Answer 1

Answer:

Interest for A's Capital is 51,066

Interest for B's Capital is 44,932

Explanation:

New capital for A (according to their profit sharing ratio) = 8,00,000 * 2/3

= 5,33,333

A has to bring additional capital (5,33,333 - 2,10,000) = 3,23,333

New capital for B (according to their profit sharing ratio) = 8,00,000 * 1/3

= 2,66,666

B has to withdraw additional capital already in the firm (5,90,000 - 2,66,666) = 3,23,334

Now,

Calculation of interest :

1. Interest for 4 months on old capital @ 12% (1st April 2016 to 31st July 2016);

interest on capital of A = 2,10,000 * 12/100 * 4/12

= 8,400

interest on capital of B = 5,90,000 * 12/100 * 4/12

= 23,600

2. Interest for 8 months on new capital @ 12% (1st August 2016 to 31 March 2017);

interest on capital of A = 5,33,333 * 12/100 * 8/12

= 42,666

interest on capital of B = 2,66,666 * 12/100 * 8/12

=21,332

Interest on capital for the year ending 31st March, 2017 :

1. interest on capital of A = 8,400 + 42,666

=51,066

2. interest on capital of B = 23,600 + 21,332

=44,932