Question 43 of 50intermediate🔧 ApplyNumerical4 marks

Raj and Neeraj are partners in a firm. Their capitals as on April 01, 2019 were Rs. 2,50,000 and Rs. 1,50,000, respectively. They share profits equally. On July 01, 2019, they decided that their capitals should be Rs. 1,00,000 each. The necessary adjustment in the capitals were made by introducing or withdrawing cash by the partners’. Interest on capital is allowed @ 8% p.a. Compute interest on capital for both the partners for the year ending on March 31, 2020.

Correct Answer

Interest on Raj's Capital: Rs. 11,000 Interest on Neeraj's Capital: Rs. 9,000

Exercise: Numerical Questions | Q: 23 | (Page 43)
For More Understanding

Explanation

This question tests the calculation of interest on capital when there is a change in capital during the year. The key principle from the textbook is that interest on capital is calculated with due allowance for any addition or withdrawal of capital during the accounting period. When capital changes mid-year, interest must be calculated separately for each period with different capital amounts. Raj had higher capital (Rs. 2,50,000) for the first 3 months and withdrew Rs. 1,50,000 to reduce it to Rs. 1,00,000. Neeraj had Rs. 1,50,000 for the first 3 months and withdrew Rs. 50,000 to reduce it to Rs. 1,00,000.

Solution Steps

  1. Step 1: Determine the adjustment in capitals Raj's capital on April 01, 2019 = Rs. 2,50,000 Raj's capital from July 01, 2019 = Rs. 1,00,000 Amount withdrawn by Raj = Rs. 2,50,000 - Rs. 1,00,000 = Rs. 1,50,000

    Neeraj's capital on April 01, 2019 = Rs. 1,50,000 Neeraj's capital from July 01, 2019 = Rs. 1,00,000 Amount withdrawn by Neeraj = Rs. 1,50,000 - Rs. 1,00,000 = Rs. 50,000

  2. Step 2: Calculate Interest on Raj's Capital Interest on Rs. 2,50,000 for 3 months (April to June) = Rs. 2,50,000×8000 \times 8/100×3100 \times 3/12 = Rs. 5,000 Interest on Rs. 1,00,000 for 9 months (July to March) = Rs. 1,00,000×8000 \times 8/100×9100 \times 9/12 = Rs. 6,000 Total Interest on Raj's Capital = Rs. 5,000 + Rs. 6,000 = Rs. 11,000

  3. Step 3: Calculate Interest on Neeraj's Capital Interest on Rs. 1,50,000 for 3 months (April to June) = Rs. 1,50,000×8000 \times 8/100×3100 \times 3/12 = Rs. 3,000 Interest on Rs. 1,00,000 for 9 months (July to March) = Rs. 1,00,000×8000 \times 8/100×9100 \times 9/12 = Rs. 6,000 Total Interest on Neeraj's Capital = Rs. 3,000 + Rs. 6,000 = Rs. 9,000

PreviousNext