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A and B contribute 400000 and 300000 respectively as their capitals. They decided to allow interest on capital @ 8% p.a. Their respective share of profits 3:2 and the profit for the year Rs42000 before allowing for interest on capitals. Shows the distribution of profits (I) where there is no agreement except for interest on capitals, and (II) where there is a clear agreement that the interest on capitals will be allowed even if it involves the firm in loss?
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A and B contribute 400000 and 300000 respectively as their capitals. T...
Introduction: In this problem, we are given the capital contributions of A and B, their agreed upon interest rate, their profit sharing ratio, and the total profit earned by the firm for the year. We are asked to show the distribution of profits under two different scenarios.

Scenario 1: No agreement except for interest on capital

  • Interest on capital for A = 400000 * 8% = Rs. 32000

  • Interest on capital for B = 300000 * 8% = Rs. 24000

  • Total interest on capital = Rs. 56000

  • Profit after interest on capital = Rs. 42000 - Rs. 56000 = Rs. -14000 (loss)

  • As there is no agreement except for interest on capital, the loss of Rs. 14000 will be shared by A and B in their profit sharing ratio of 3:2.

  • Share of A in loss = (3/5) * Rs. 14000 = Rs. 8400

  • Share of B in loss = (2/5) * Rs. 14000 = Rs. 5600

  • New capital balance for A = Rs. 400000 + Rs. 32000 - Rs. 8400 = Rs. 728600

  • New capital balance for B = Rs. 300000 + Rs. 24000 - Rs. 5600 = Rs. 319400



Scenario 2: Agreement to allow interest on capital even if it involves the firm in loss

  • Interest on capital for A = 400000 * 8% = Rs. 32000

  • Interest on capital for B = 300000 * 8% = Rs. 24000

  • Total interest on capital = Rs. 56000

  • Profit after interest on capital = Rs. 42000 - Rs. 56000 = Rs. -14000 (loss)

  • As per the agreement, interest on capital will be allowed even if it involves the firm in loss. Therefore, A and B will not share the loss.

  • Share of A in profits = (3/5) * Rs. 42000 = Rs. 25200

  • Share of B in profits = (2/5) * Rs. 42000 = Rs. 16800

  • Final distribution of profits:


    • A: Rs. 25200 + Rs. 32000 - Rs. 8400 = Rs. 48800

    • B: Rs. 16800 + Rs. 24000 - Rs. 5600 = Rs. 35200




Explanation: In the first scenario, the firm incurs a loss after paying interest on capital. As there is no agreement regarding the distribution of losses, the loss is shared by A and B in their profit sharing ratio. In the second scenario, the firm incurs a loss but as per the agreement, interest on capital will be allowed even if it leads to a loss. Therefore, A
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A and B contribute 400000 and 300000 respectively as their capitals. T...
Case 1. when there is no agreement of i interest on capital...then it will b charge as an appropriation i.e.
A interest on capital is 24000
B 's interest on capital is 18000.
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A and B contribute 400000 and 300000 respectively as their capitals. They decided to allow interest on capital @ 8% p.a. Their respective share of profits 3:2 and the profit for the year Rs42000 before allowing for interest on capitals. Shows the distribution of profits (I) where there is no agreement except for interest on capitals, and (II) where there is a clear agreement that the interest on capitals will be allowed even if it involves the firm in loss?
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A and B contribute 400000 and 300000 respectively as their capitals. They decided to allow interest on capital @ 8% p.a. Their respective share of profits 3:2 and the profit for the year Rs42000 before allowing for interest on capitals. Shows the distribution of profits (I) where there is no agreement except for interest on capitals, and (II) where there is a clear agreement that the interest on capitals will be allowed even if it involves the firm in loss? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about A and B contribute 400000 and 300000 respectively as their capitals. They decided to allow interest on capital @ 8% p.a. Their respective share of profits 3:2 and the profit for the year Rs42000 before allowing for interest on capitals. Shows the distribution of profits (I) where there is no agreement except for interest on capitals, and (II) where there is a clear agreement that the interest on capitals will be allowed even if it involves the firm in loss? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A and B contribute 400000 and 300000 respectively as their capitals. They decided to allow interest on capital @ 8% p.a. Their respective share of profits 3:2 and the profit for the year Rs42000 before allowing for interest on capitals. Shows the distribution of profits (I) where there is no agreement except for interest on capitals, and (II) where there is a clear agreement that the interest on capitals will be allowed even if it involves the firm in loss?.
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