Question 45 of 50intermediate🔧 ApplyNumerical4 marks

On March 31, 2017, after the close of books of accounts, the capital accounts of Ram, Shyam and Mohan showed balance of Rs. 24,000 Rs. 18,000 and Rs. 12,000, respectively. It was later discovered that interest on capital @ 5% had been omitted. The profit for the year ended March 31, 2017, amounted to Rs. 36,000 and the partner’s drawings had been Ram, Rs. 3,600; Shyam, Rs. 4,500 and Mohan, Rs. 2,700. The profit sharing ratio of Ram, Shyam and Mohan was 3:2:1. Calculate interest on capital.

Correct Answer

Interest on Ram's Capital: Rs. 480; Interest on Shyam's Capital: Rs. 525; Interest on Mohan's Capital: Rs. 435

Exercise: Numerical Questions | Q: 27 | (Page 43)
For More Understanding

Explanation

The capital account balances given are closing balances after crediting profit and debiting drawings. To calculate interest on capital, we need to first determine the opening capital balances by reversing these adjustments. The opening capital is calculated as: Closing Capital - Profit Share + Drawings. Then interest is calculated at 5% on the opening capital.

Solution Steps

  1. Step 1: Calculate profit shares based on ratio 3:2:1. Total Profit = Rs. 36,000. Ram's share = 36,000×3000 \times 3/6 = Rs. 18,000; Shyam's share = 36,000×2000 \times 2/6 = Rs. 12,000; Mohan's share = 36,000×1000 \times 1/6 = Rs. 6,000.

  2. Step 2: Calculate Opening Capital Balances. Opening Capital = Closing Capital - Profit Share + Drawings. Ram's Opening Capital = 24,000 - 18,000 + 3,600 = Rs. 9,600. Shyam's Opening Capital = 18,000 - 12,000 + 4,500 = Rs. 10,500. Mohan's Opening Capital = 12,000 - 6,000 + 2,700 = Rs. 8,700.

  3. Step 3: Calculate Interest on Capital @ 5%. Interest on Ram's Capital = 9,600×5600 \times 5/100 = Rs. 480. Interest on Shyam's Capital = 10,500×5500 \times 5/100 = Rs. 525. Interest on Mohan's Capital = 8,700×5700 \times 5/100 = Rs. 435.

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