Question

The capital accounts of Tisha and Divya showed credit balances of 10,00,000 and 7,50,000 respect
after taking into account drawings and net profit of * 5,00,000. The drawings of the partners during
the year 2020-21 were:
(i) Tisha withdrew * 25,000 at the end of each quarter.
(ii) Divya's drawings were:
31st May, 2020
20,000
1st November, 2020
17,500
1st February, 2021
12,500
Calculate interest on partners' capitals @ 10% p.a. and interest on partners' drawings @ 6% p.a. for the year
ended 31st March, 2021.

​

Answer 1

Concept:

Interest on partner's capital of Tisha & Divya is Rs 85,000 & Rs 55,000 respectively and interest on drawings for Tisha is Rs. 2,250.

Given:

Capital balances of Tisha & Divya & Drawings amount with specific date of Tisha.  

Find:

We have to calculate interest on partner's capital at 10% & interest on partner's drawings at 6% p.a.

Solution:

                           Tisha            Divya

Closing capital   10,00,000 7,50,000

(-) Profit                  2,50,000 2,50,000

(+) Drawings           1,00,000 50,000

Opening capital  8,50,000 5,50,000

 

Interest on capital (10%)  

 

Tisha = 8,50,000 x 10 / 100    = 85,000

 

Divya  = 5,50,000 x 10 / 100   = 55,000

 

Interest on Drawings (6%)  

 

Tisha = 1,00,000 x 6 / 100           = 2,250

 

Divya    

 

Date  Amount   Period    Product  

31st May  20,000  10       2,00,000

1st Nov 17,500  5        87,500

1st Feb 12,500  2        25,000

                        3,12,500

 

Divya = 3,12,500 x 6 / 100 x 1 / 12  

 

  = Rs 1563  

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Answer 2

Concept:

Interest On Capital-The set return on investment that the business owner is entitled to receive is known as interest on capital. It is the share capital interest that is given to the investor for the sum they agree to invest in their firm. The excess over the entire amount they employed is eligible for interest payment to the partner. Usually, it happens in partnership businesses.

Interest On Drawing-Drawings are sums that the owner takes out for his own use. When interest on capital is permitted, the owner must pay interest on any drawings. Drawing interest is a source of revenue for the company and lowers the owner's capital.

Given:

• Closing Capitals  

Tisha = 1000000

Divya = 750000

• Profit = 500000

• Drawings

Tisha = 100000

Divya = 20000 , 17500 and 12500

• Rate

IOC=10%

IOD=6%

Find:

Interest on capital and interest on drawings

Solution:

(A) Calculation of Interest on Capital

     Opening capital = Closing capital + Drawing - Profit

     Interest on capital = Opening capital x 10%

1. Tisha

  Opening capital = 1000000+100000-250000

   Opening capital = 850000

   Interest on capital = 850000 x 10%

   Interest on capital = 85000

2. Divya

   Opening capital = 750000+50000-250000

   Opening capital = 550000

   Interest on capital = 550000 x 10%

   Interest on capital = 55000

     

(B) Calculation of Interest on Drawings

1. Tisha

  Total Drawings= 25,000×4=1,00,000

  Interest on Drawings= 1,00,000×3/100×4.5/12

  Interest on Drawings=2,250

2. Divya

   Interest on Drawings = 3,12,500×6/100×1/12

   Interest on Drawings = 1,563

working notes-

Date of drawing     Amount    Time left after drawing      Product

31/05/2020               20000             10                                  200000

01/11/2020                 17500              05                                  87500

01/02/2021                12500              02                                  25000

Total of products                                                                      312500

Hence, we can conclude that the interest on capital of Tisha and Divya are 85000 and 55000 respectively while their interest on drawing are 2250 and 1563 respectively.

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