On March 31, 2017 after the close of accounts, the capitals of Mountain, Hill and Rock stood in the books of the firm at Rs. 4,00,000,Rs.3,00,000 and Rs. 2,00,000, respectively. Subsequently, it was discovered that the interest on capital @ 10% p.a. had been omitted. The profit for the year amounted to Rs. 1,50,000 and the partner’s drawings had been Mountain: Rs. 20,000, Hill Rs. 15,000 and Rock Rs. 10,000. Calculate interest on capital.
Interest on Capital: Mountain Rs. 37,000; Hill Rs. 26,500; Rock Rs. 16,000
Explanation
The question requires calculating interest on capital when closing capitals are given but interest was omitted. Since profit-sharing ratio is not mentioned, it is assumed to be equal (1:1:1). The opening capital is calculated by reverse adjustment: Opening Capital = Closing Capital - Share of Profit + Drawings. Interest is then computed @ 10% p.a. on opening capitals.
Solution Steps
Step 1: Calculate Share of Profit for each partner (assuming equal ratio 1:1:1)
Share of Profit = Rs. 1,50,000 ÷ 3 = Rs. 50,000 each
Step 2: Calculate Opening Capital for each partner
Opening Capital = Closing Capital - Share of Profit + Drawings
Mountain's Opening Capital = Rs. 4,00,000 - Rs. 50,000 + Rs. 20,000 = Rs. 3,70,000
Hill's Opening Capital = Rs. 3,00,000 - Rs. 50,000 + Rs. 15,000 = Rs. 2,65,000
Rock's Opening Capital = Rs. 2,00,000 - Rs. 50,000 + Rs. 10,000 = Rs. 1,60,000
Step 3: Calculate Interest on Capital @ 10% p.a.
Interest on Mountain's Capital = Rs. 3,70,/100 = Rs. 37,000
Interest on Hill's Capital = Rs. 2,65,/100 = Rs. 26,500
Interest on Rock's Capital = Rs. 1,60,/100 = Rs. 16,000