Question

C and D contribute ₹ 5,00,000 and ₹ 3,00,000, respectively, in a partnership firm by way of capital, on which they agree to allow interest @ 6% p.a. Their profit or loss sharing ratio is 2 : 3. The profit at the end of the year was ₹ 16,000 before allowing interest on capital. If there is a clear agreement that interest on capital will be paid even in case of loss, then D’s share will be:

Options

• Profit ₹ 10,000

• Profit ₹ 6,000

• Loss ₹ 19,200

• Loss ₹ 12,800

Answer 1

Loss ₹ 19,200

Explanation:

Calculate Interest on Capital:

Interest on C’s Capital = `5,00,000 xx 6/100`

= 30,000

Interest on D’s Capital = `3,00,000 xx 6/100`

= 18,000

Total Interest on Capital = 30,000 + 18,000

= 48,000

Since interest on capital is allowed even in the case of loss, the profit available for distribution after interest will be 16,000 − 48,000 = −32,000.

This indicates a loss of ₹ 32,000 to be distributed among partners.

C’s share of loss = `32,000 xx 2/5`

= ₹ 12,800

D’s share of loss = `32,000 xx 3/5`

= ₹ 19,200