# Question 41 Chapter 2 of +2-A – T.S. Grewal 12 Class Part – A Vol. 1

Question 41 Chapter 2 of +2-A

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(D) Product(E=A*B) April 01, 2018 to April 30, 2018 6,00,000 *1 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

 Period Bir’s Opening Capital(A) Introduction/ (Withdrawal)(B) Bir’s Closing Capital(C = A-B) Period Left after(D) Product(E=A*B) 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

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(D) Product(E=A*B) 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

 Period Bir’s Opening Capital(A) Introduction/ (Withdrawal)(B) Bir’s Closing Capital(C = A-B) Period Left after(D) Product(E=A*B) 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

Comment if you have any questions.

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. 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

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