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Question
From the following balance sheet of A and B, calculate interest on capital at 5% p.a. for the year ending 31st March, 2024:
| Balance sheet as at 31st March, 2024 |
|||
| Liabilities | ₹ | Assets | ₹ |
| A’s Capital | 1,00,000 | Fixed Assets | 1,40,000 |
| B’s Capital | 80,000 | Current Assets | 60,000 |
| Profit and Loss Appropriation A/c 2023-24 |
40,000 | Drawings: B | 20,000 |
| 2,20,000 | 2,20,000 | ||
Profit during the year ended 31st March, 2024, was ₹ 70,000. A and B share profits in the ratio of 2 : 1. Drawings during the year ended 31st March, 2024, were A ₹ 16,000 and B ₹ 20,000.
Numerical
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Solution
| Particulars | A (₹) | B (₹) |
| Closing Capitals | 1,00,000 | 80,000 |
| Add: Drawings (which were previously deducted from the capital of A) | 16,000 | - |
| 1,16,000 | 80,000 | |
| Less: Share of Profit (₹ 70,000 – ₹ 40,000 = ₹ 30,000 in 2 : 1) | 20,000 | 10,000 |
| Opening Capitals | 96,000 | 70,000 |
| Interest on capital at 5% p.a | 4,800 | 3,500 |
Working Notes:
Since B’s drawings appear in the Balance Sheet, it means that his drawings have not been deducted from his capital so far, and hence, his drawings have not been added back.
Profits during the year ending 31st March 2024 were ₹70,000, but ₹ 40,000 still appears in the balance sheet; therefore, only ₹ 30,000 were distributed between the partners.
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