Question

A and B contribute ₹ 1,00,000 and ₹ 60,000, respectively, in a partnership firm by way of capital, on which they agree to allow interest @ 8% p.a. Their profit or loss sharing ratio is 3 : 2. The profit at the end of the year was ₹ 2,800 before allowing interest on capital. If there is a clear agreement that interest on capital will be paid even in case of loss, then B’s share will be:

Options

• Profit ₹ 6,000

• Profit ₹ 4,000

• Loss ₹ 6,000

• Loss ₹ 4,000

Answer 1

Loss ₹ 4,000

Explanation:

Interest on A’s capital = `1,00,000 xx 8/100`

= ₹ 8,000

Interest on B’s capital = `60,000 xx 8/100`

= ₹ 4,800

Total interest to be paid = 8,000 + 4,800

= ₹ 12,800

The net profit of the firm before allowing interest on capital is ₹ 2,800.

Loss = Interest on Capital − Profit

= 12,800 − 2,800

= ₹ 10,000

The loss of ₹ 10,000 will be distributed in the profit-sharing ratio of 3 : 2.

A’s share of loss = `10,000 xx 3/5`

= ₹ 6,000

B’s share of loss = `10,000 xx 2/5`

= ₹ 4,000

Since the total interest on capital exceeds the profit, the resulting loss of ₹ 10,000 is distributed in the profit-sharing ratio. Hence, B’s share of loss is ₹ 4,000.