Question

Rohan, Riya and Priya were partners in a firm with profit sharing ratio of 4 : 2: 1. Priya retired on 1st September, 2024. On that day, the capitals of Rohan and Riya after all adjustments were ₹ 10,50,000 and ₹ 5,50,000 respectively. Total amount payable to Priya was ₹ 4,00,000 which was not paid to her until 31st March, 2025.

The Firm earned a profit of ₹ 50,000 during the period of 7 months ended on 31st March, 2025. Priya wants to exercise provisions of Section 37 of Indian Partnership Act. 1932.

Which of the two options available under Section 37 should be opted by Priya, if amount due to her was paid on 31st March, 2025?

Answer 1

The total amount payable to Priya was ₹ 4,00,000

Calculate interest at 6% p.a. on ₹ 4,00,000 for 7 months

Formula for simple interest: Interest = `(P xx R xx T)/100`

P = Principal = ₹ 4,00,000

R = Rate = 6% p.a.

T = Time in years = 7 months = `1/12` year

Interest = `(400000 xx 6 xx 7/12)/100`

= 4,00,000 × 0.06 × 0.5833

= 14,000

Calculate Priya’s share of profits for 7 months

Total capital employed:

Rohan = ₹ 10,50,000

Riya = ₹ 5,50,000

Priya’s unpaid amount = ₹4,00,000

Total Capital = ₹20,00,000

Profit for 7 months = ₹ 50,000

Priya’s share of profits = `50,000 xx 4,00,000/20,00,000` 

= 10,000

Compare interest and share of profits

Interest = ₹ 14,000

Share of profits = ₹ 10,000

Priya should opt for the amount which benefits her the most.