A and b are partners in a firm. their capital account showed the balan...
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.
A and b are partners in a firm. their capital account showed the balan...
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