Question 4 of 35intermediate🔧 ApplyMCQ1 mark

If the opening capital is ₹ 50,000 as on April 01, 2016 and additional capital introduced ₹ 10,000 on January 01, 2017. Interest charge on capital 10% p.a. The amount of interest on capital shown in profit and loss account as on March 31, 2017 will be:

Exercise: Test Your Understanding | Q: 4 | (Page 22)
For More Understanding

Explanation

The correct option is (A) ₹ 5,250.

Interest on capital is calculated on the opening capital for the full accounting year. However, for any additional capital introduced during the year, the interest is computed specifically from the date on which it was brought into the business until the end of the financial year.

In this problem, the opening capital of ₹ 50,000 earns interest for the full year (12 months), while the additional capital of ₹ 10,000 introduced on January 01, 2017, earns interest for 3 months (January, February, and March).

Solution Steps

  1. Step 1: Calculate Interest on Opening Capital Interest = Principal × Rate × Time = ₹ 50,000×10000 \times 10% × 12/12 = ₹ 5,000

  2. Step 2: Calculate Interest on Additional Capital Time period = From Jan 01, 2017 to Mar 31, 2017 = 3 months Interest = ₹ 10,000×10000 \times 10% × 3/12 = ₹ 250

  3. Step 3: Calculate Total Interest on Capital Total Interest = Interest on Opening Capital + Interest on Additional Capital = ₹ 5,000 + ₹ 250 = ₹ 5,250

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