A and b are partners in a firm. their capital account showed the balance on april 1st 2020 is rs 500000 and rs 400000 respectively. on august 1 2020 they introduced further capital of rs 100000 and rs 50000 respectively. interest on capital is allowed @ 8% pa compute interest on capitals for the year ending march 31 2021?

Question

Answer

Calculation of interest on capitals for the year ending March 31, 2021

Given data:
Partner A's capital on April 1, 2020 = Rs. 500,000
Partner B's capital on April 1, 2020 = Rs. 400,000
Further capital introduced by A on August 1, 2020 = Rs. 100,000
Further capital introduced by B on August 1, 2020 = Rs. 50,000
Interest on capital allowed @ 8% p.a.

Step 1: Calculate the weighted average capital for the year

- Weighted average capital = (Capital at the beginning of the year x Number of months) + (Capital introduced during the year x Number of months)
- Partner A's weighted average capital = (500,000 x 12) + (100,000 x 8) = 7,600,000
- Partner B's weighted average capital = (400,000 x 12) + (50,000 x 8) = 4,900,000

Step 2: Calculate the interest on capitals for the year

- Interest on capital = Weighted average capital x Rate of interest
- Interest on Partner A's capital = 7,600,000 x 0.08 = 608,000
- Interest on Partner B's capital = 4,900,000 x 0.08 = 392,000

Step 3: Allocate the interest on capitals between the partners

- Interest on capitals should be allocated in the ratio of their capital balances at the beginning of the year
- Partner A's share of interest = (500,000 / 900,000) x 1,000,000 = 555,556
- Partner B's share of interest = (400,000 / 900,000) x 1,000,000 = 444,444

Therefore, the interest on capitals for the year ending March 31, 2021 is Rs. 555,556 for Partner A and Rs. 444,444 for Partner B.

Answer

A's IOC = 5,00,000 x 8/100 x 4/12 + 6,00,00 x 8/100 x 8/12 = 40,000/3 + 32,000 = 13,333.33 + 32,000 = 45,333.33

B's IOC = 4,00,000 x 8/100 x 4/12 + 4,50,000 x 8/100 x 8/12 = 32,000/3 + 24,000 = 10,666.67 + 24,000 = 34,666.67

Answer

First, let's calculate the capital balance of A and B on August 1, 2020: A's capital balance on August 1, 2020 = Rs. 500,000 + Rs. 100,000 = Rs. 600,000 B's capital balance on August 1, 2020 = Rs. 400,000 + Rs. 50,000 = Rs. 450,000 Next, let's calculate the average capital of A and B for the year. We'll assume that they didn't make any further changes to their capital balances during the year: Average capital of A = (Rs. 500,000 + Rs. 600,000) / 2 = Rs. 550,000 Average capital of B = (Rs. 400,000 + Rs. 450,000) / 2 = Rs. 425,000 Now, we can calculate the interest on their capitals for the year using the following formula: Interest on capital = Average capital * Rate of interest In this case, the rate of interest is 8% per annum. We need to calculate the interest for the period from August 1, 2020, to March 31, 2021, which is 8 months. So, the interest calculation would be: Interest on A's capital = Rs. 550,000 * 8% * (8/12) = Rs. 29,333 Interest on B's capital = Rs. 425,000 * 8% * (8/12) = Rs. 18,000 Therefore, the total interest on their capitals for the year ending March 31, 2021, is Rs. 29,333 + Rs. 18,000 = Rs. 47,333.

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