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Question 41 Chapter 2 of +2-A
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41. Simrat and Bir are partners in a firm sharing profits and losses in the ratio of 3: 2. On 31st March 2019 after closing the books of account, their Capital Accounts stood at 4,80,000 and 6,00,000 respectively. On 1st May 2018, Simrat introduced an additional capital of 1,20,000 and Bir withdrew 60,000 from his capital. On 1st October 2018, Simrat withdrew 2,40,000 from her capital and Bir introduced 3,00,000. Interest on capital is allowed at 6% p.a. Subsequently, it was noticed that interest on capital @ 6% p.a. had been omitted. Profit for the year ended 31st March 2019 amounted to 2,40,000 and the partners’ drawings had been: Simrat – 1,20,000 and Bir – 60,000. Compute the interest on capital if the capitals are a fixed, and b fluctuating.
The solution of Question 41 Chapter 2 of +2-A:
Calculation of Interest on Simrat’s Capital
In this case, capital is fixed so, Drawing out of profit and share of profit will not be treated in the capital account because these are treated in the current account of Partners.
Period | Simrat’s Opening Capital (A) | Introduction/ (Withdrawal) (B) | Simrat’s Closing Capital (C = A-B) | Period Left after | Product |
| April 01, 2018 to April 30, 2018 | 6,00,000 | 0 | 6,00,000 | 1 | 6,00,000 |
| May 01, 2018 to Sep 30,2019 | 6,00,000 | + 1,20,000 | 7,20,000 | 5 | 36,00,000 |
| Oct 01, 2018 to March 31,2019 | 7,20,000 | – 2,40,000 | 4,80,000 | 6 | 28,80,000 |
| Sum of Product | 70,80,000 |
| Interest on Capital | = | Sum of Product | X | Rate of Interest | X 1/12 |
| Interest on Simrat’s Capital | = | 70,80,000 | X | 6 | X | 1 |
| 100 | 12 |
Interest on Simrat’s Capital = 35,400/-
Calculation of Interest on Bir’s Capital
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Period | Bir’s Opening Capital | Introduction/ (Withdrawal) (B) | Bir’s Closing Capital (C = A-B) | Period Left after | Product |
| April 01, 2018 to April 30, 2018 | 3,60,000 *1 | 0 | 3,60,000 | 1 | 3,60,000 |
| May 01, 2018 to Sep 30,2019 | 3,60,000 | – 60,000 | 3,60,000 | 5 | 15,00,000 |
| Oct 01, 2018 to March 31,2019 | 3,60,000 | + 3,00,000 | 6,00,000 | 6 | 36,00,000 |
| Sum of Product | 54,60,000 |
| Interest on Capital | = | Sum of Product | X | Rate of Interest | X 1/12 |
| Interest on Bir’s Capital | = | 54,60,000 | X | 6 | X | 1 |
| 100 | 12 |
Interest on Bir’s Capital = 27,300/-
Calculation of opening balance of Capital
In this case, capital is fixed so, Drawing out of profit and share of profit will not be treated in the capital account because these are treated in the current account of Partners.
Particulars | Amount of Simrat’s Capital | Amount of Bir’s Capital |
| Capital at the end | 4,80,000 | 6,00,000 |
| Less: Fresh capital introduced | 1,20,000 | 3,00,000 |
| Add: Drawings During the year from capital | 2,40,000 | 60,000 |
| Capital at the beginning | 6,00,000 | 3,60,000 |
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Case II
Calculation of Interest on Simrat’s Capital
In this case, Profit and drawing out of profit will be credited in the end of the year. So, no interest is calculated on these amounts.
Period | Simrat’s Opening Capital (A) | Introduction/ (Withdrawal) (B) | Simrat’s Closing Capital (C = A-B) | Period Left after | Product |
| April 01, 2018 to April 30, 2018 | 5,76,000 | 0 | 0 | 1 | 5,76,000 |
| May 01, 2018 to Sep 30,2019 | 5,76,000 | + 1,20,000 | 6,96,000 | 5 | 34,80,000 |
| Oct 01, 2018 to March 31,2019 | 6,96,000 | – 2,40,000 | 4,56,000 | 6 | 27,36,000 |
| Sum of Product | 67,92,000 |
| Interest on Capital | = | Sum of Product | X | Rate of Interest | X 1/12 |
| Interest on Simrat’s Capital | = | 67,92,000 | X | 6 | X | 1 |
| 100 | 12 |
Interest on Simrat’s Capital = 33,960/-
Calculation of Interest on Bir’s Capital
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Period | Bir’s Opening Capital | Introduction/ (Withdrawal) (B) | Bir’s Closing Capital (C = A-B) | Period Left after | Product |
| April 01, 2018, to April 30, 2018 | 3,24,000 | 0 | 3,24,000 | 1 | 3,24,000 |
| May 01, 2018 to Sep 30,2019 | 3,24,000 | – 60,000 | 2,64,000 | 5 | 13,20,000 |
| Oct 01, 2018, to March 31, 2019 | 2,64,000 | + 3,00,000 | 5,64,000 | 6 | 33,84,000 |
| Sum of Product | 50,28,000 |
| Interest on Capital | = | Sum of Product | X | Rate of Interest | X 1/12 |
| Interest on Bir’s Capital | = | 50,28,000 | X | 6 | X | 1 |
| 100 | 12 |
Interest on Bir’s Capital = 25,140/-
Calculation of opening balance of Capital
In this case, capital is fixed so, Drawing out of profit and share of profit will not be treated in the capital account because these are treated in the current account of Partners.
Particulars | Amount of Simrat’s Capital | Amount of Bir’s Capital |
| Capital at the end | 4,80,000 | 6,00,000 |
| Less: Fresh capital introduced | 1,20,000 | 3,00,000 |
| Profit already credited | 1,44,000 | 96,000 |
| Add: Drawings During the year from capital | 2,40,000 | 60,000 |
| Drawings During the year out of Profit | 1,20,000 | 60,000 |
| Capital at the beginning | 5,76,000 | 3,24,000 |
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Also, Check out the solved question of previous Chapters: –
T.S. Grewal’s Double Entry Book Keeping +2 (Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms)
- Chapter No. 1 – Financial Statement of Not-For-Profit Organisations
- Chapter No. 2 – Accounting for Partnership Firms – Fundamentals
- Chapter No. 3 – Goodwill: Nature and Valuation
- Chapter No. 4 – Change in Profit-Sharing Ratio Among the Existing Partners
- Chapter No. 5 – Admission of a Partner
- Chapter No. 6 – Retirement/Death of a Partner
- Chapter No. 7 – Dissolution of a Partnership Firm
T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)
- Chapter No. 8 – Company Accounts – Accounting for Share Capital
- Chapter No. 9 – Company Accounts – Issue of Debentures
- Chapter No. 10 – Redemption of Debentures
T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)
- Chapter No. 1 – Financial Statements of a Company
- Chapter No. 2 – Financial Statement Analysis
- Chapter No. 3 – Tools of Financial Statement Analysis – Comparative Statements and Common- Size Statements
- Chapter No. 4 – Accounting Ratios
- Chapter No. 5 – Cash Flow Statement
Check out T.S. Grewal +2 Book 2020@ Official Website of Sultan Chand Publication
