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Question
The capital accounts of A, B and C showed credit balances of ₹ 5,00,000, ₹ 3,00,000 and ₹ 2,00,000, respectively, after taking into account drawings and a net profit of ₹ 3,00,000. They shared profits in the ratio of 2 : 1 : 1. The drawings of the partners during the year 2023-24 were:
- A withdrew ₹ 10,000 at the beginning of each half year.
- B withdrew ₹ 10,000 at the end of each half year.
- C’s Drawings were:
₹ 1st May, 2023 6,000 1st October, 2023 5,000 31st Dec. 2023 4,000 31st March, 2024 5,000
Calculate interest on partners’ capitals @ 8% p.a. and interest on partners’ drawings @ 10% p.a. for the year ended 31st March, 2024.
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Solution
Calculation of opening capitals:
| Particulars | A (₹) | B (₹) | C (₹) |
| Closing Capitals | 5,00,000 | 3,00,000 | 2,00,000 |
| Add: Drawings | 20,000 | 20,000 | 20,000 |
| Less: Profits (₹ 3,00,000 in 2 : 1 : 1) | (1,50,000) | (75,000) | (75,000) |
| 3,70,000 | 2,45,000 | 1,45,000 | |
| Interest on capital @ 8% p.a | 29,600 | 19,600 | 11,600 |
Interest on drawings:
i. A’s drawings = ₹ 20,000
Since ₹ 10,000 is withdrawn at the beginning of each half-year, the interest will be calculated differently for each.
Interest on drawings made at the beginning of the first half-year.
This ₹ 10,000 remains in the business for the full year (12 months).
= `10,000 xx 10/100 xx 12/12`
= ₹ 1,000
Interest on drawings made at the beginning of the second half-year.
This ₹ 10,000 remains in the business for half a year (6 months).
= `10,000 xx 10/100 xx 6/12`
= ₹ 500
Total interest = 1,000 + 500
= ₹ 1,500
ii. B’s drawings = ₹ 20,000
Since ₹ 10,000 is withdrawn at the end of each half-year, the interest will be calculated differently for each.
Interest on drawings made at the end of the first half-year.
This ₹ 10,000 remains in the business for half a year (6 months).
= `10,000 xx 10/100 xx 6/12`
= ₹ 500
Interest on drawings made at the end of the second half-year.
This ₹ 10,000 remains in the business for 0 months (since it’s withdrawn at the end of the year, no time passes before the year ends). No interest is charged on this withdrawal because it was made at the end of the year.
Total interest = ₹ 500
iii. C’s interest on drawings:
| Date | Amount of drawings (₹) |
No. of months upto 31st March 2024 | Products (₹) |
| 1.5.2023 | 6,000 | 11 | 66,000 |
| 1.10.2023 | 5,000 | 6 | 30,000 |
| 31.12.2023 | 4,000 | 3 | 12,000 |
| 31.3.2024 | 5,000 | 0 | 0 |
| 1,08,000 |
C’s interest on drawings = `1,08,000 xx 10/100 xx 1/12`
= ₹ 900
