Question

Richa and Kanika are partners in a business. Their capitals
at the end of the year were ₹48,000 and ₹36,000
respectively. During the year ended 31st March, 2015,
Richa's drawings and Kanika's drawings were 8,000 and
12,000 respectively. Profit (before charging interest on
capital) during the year was † 32,000 which was duly
credited to their accounts in their profit sharing ratio.
Calculate the interest on the capital @ 5% for the year ended
31st March, 2015.

Answer 1

Given data:

• Richa and Kanika are partners in a business.
• Their closing capitals are Rs 48,000 and Rs 36,000.
• Richa withdrew Rs 8,000 and Kanika withdrew Rs 12,000 during the year.
• The profit for the year was Rs 32,000.
• Interest on capital is charged at 5% p.a.

To find: The interest on capital.

Answer:

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

Since there is no specific ratio mentioned in the question, it is assumed that the profits and losses are shared equally. The ratio here will therefore be 1:1.

Calculation of share profits:

For Richa:

• Profit share = Rs 32,000 × 1/2 = Rs 16,000

For Kanika:

• Profit share = Rs 32,000 × 1/2 = Rs 16,000

Interest on capital is always calculated on the opening capital. We need to calculate the opening capital from the data given to us.

Calculation of opening capital:

Opening capital = Closing capital + Drawings - Profit share

For Richa:

• Opening capital = Rs 48,000 + Rs 8,000 - Rs 16,000 = Rs 40,000

For Kanika:

• Opening capital = Rs 36,000 + 12,000 - Rs 16,000 = Rs 32,000

Calculation of interest on capital:

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

For Richa:

• Interest on capital = (Rs 40,000 × 5) ÷ 100 = Rs 2,000

For Kanika:

• Interest on capital = (Rs 32,000 × 5) ÷ 100 = Rs 1,600

Therefore, the interests on capitals for Richa and Kanika are Rs 2,000 and Rs 1,600 respectively.