Question 37 of 50beginner🔧 ApplyNumerical3 marks

Following is the extract of the Balance Sheet of, Neelkant and Mahadev as on March 31, 2020: Neelkant’s Capital 10,00,000; Mahadev’s Capital 10,00,000; Neelkant’s Current Account 1,00,000; Mahadev’s Current Account 1,00,000; Profit and Loss Appropriation (March 2017) 8,00,000. During the year Mahadev’s drawings were Rs. 30,000. Profits during 2019-20 is Rs. 10,00,000. Calculate interest on capital @ 5% p.a for the year ending March 31, 2020.

Correct Answer

Interest on Neelkant's Capital: Rs. 50,000; Interest on Mahadev's Capital: Rs. 50,000

Exercise: Numerical Questions | Q: 17 | (Page 41)
For More Understanding

Explanation

The question requires calculation of interest on capital at 5% p.a. for both partners. The Balance Sheet shows fixed capital balances of Rs. 10,00,000 each for Neelkant and Mahadev. Since these are capital account balances (not current accounts), interest is calculated directly on these amounts. The information about drawings and profits is not relevant for this specific calculation as interest on capital is calculated on the capital balance maintained in the Capital Accounts.

Solution Steps

  1. Step 1: Identify the capital balances from the Balance Sheet - Neelkant's Capital: Rs. 10,00,000; Mahadev's Capital: Rs. 10,00,000

  2. Step 2: Apply the interest rate formula: Interest on Capital = Capital Amount × Rate of Interest × Time

  3. Step 3: Calculate Interest on Neelkant's Capital = Rs. 10,00,000×5000 \times 5/100×1100 \times 1 = Rs. 50,000

  4. Step 4: Calculate Interest on Mahadev's Capital = Rs. 10,00,000×5000 \times 5/100×1100 \times 1 = Rs. 50,000

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