Sunflower and Pink Rose started partnership business on April 01, 2019 with capitals of Rs. 2,50,000 and Rs.1,50,000, respectively. On October 01, 2019, they decided that their capitals should be Rs. 2,00,000 each. The necessary adjustments in the capitals are made by introducing or withdrawing cash. Interest on capital is to be allowed @ 10% p.a. Calculate interest on capital as on March 31, 2020.
Interest on Sunflower's Capital: Rs. 22,500 Interest on Pink Rose's Capital: Rs. 17,500
Explanation
This question tests the concept of calculating interest on capital when there are changes 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. Since the capital changes on October 01, 2019, we need to calculate interest separately for two periods: April 01 to September 30 (6 months) and October 01 to March 31 (6 months). Sunflower withdraws Rs. 50,000 while Pink Rose introduces Rs. 50,000 to achieve the target capital of Rs. 2,00,000 each.
Solution Steps
Step 1: Identify the time periods - From April 01, 2019 to September 30, 2019 (6 months) and from October 01, 2019 to March 31, 2020 (6 months).
Step 2: Calculate Interest on Sunflower's Capital:
- Interest on Rs. 2,50,000 for 6 months = Rs. 2,50,//12 = Rs. 12,500
- Interest on Rs. 2,00,000 for 6 months = Rs. 2,00,//12 = Rs. 10,000
- Total Interest = Rs. 12,500 + Rs. 10,000 = Rs. 22,500
Step 3: Calculate Interest on Pink Rose's Capital:
- Interest on Rs. 1,50,000 for 6 months = Rs. 1,50,//12 = Rs. 7,500
- Interest on Rs. 2,00,000 for 6 months = Rs. 2,00,//12 = Rs. 10,000
- Total Interest = Rs. 7,500 + Rs. 10,000 = Rs. 17,500