Question

Jai and Partap are partners sharing profits in the ratio of 3 : 2. Their Capitals are ₹ 4,00,000 and ₹ 2,00,000 respectively. Firm earned a profit of ₹ 97,000 for the year ended 31st March, 2024, before providing for any of the following adjustments: Interest on Capital is to be allowed @ 8% p.a. Interest is to be provided on Loan of ₹ 1,00,000 taken from Partap on 1st June 2023 and again ₹ 50,000 taken on 1st August, 2023. Jai is entitled to a rent of ₹ 5,000 per month for using his property for business purposes. Rent is still payable at the end of the year.

Based on the above information you are required to answer the following question:

Interest on Capital will be ______.

Options

• Jai ₹ 32,000 and Partap ₹ 16,000

• Jai ₹ 18,000 and Partap ₹ 12,000

• Jai ₹ 20,000 and Partap ₹ 10,000

• No Interest will be allowed

Answer 1

Interest on Capital will be Jai ₹ 20,000 and Partap ₹ 10,000.

Explanation:

Interest on Jai's capital: 8% on ₹ 4,00,000          = 32,000

Interest on Partap's Capital: 8% on ₹ 2,00,000   = 16,000

Total Interest on Capital                                      = 48,000

Profit will be distributed in the ratio of interest on capital, which is 32,000 : 16,000 or 2 : 1, as the available profit is only ₹ 30,000, which is less than the interest payable of ₹ 48,000.

Jai's Share = 30.000 × `2/3` = ₹ 20,000

Partap's Share = 30,000 × `1/3` = ₹ 10,000