Computing Interest on Capital Video Lecture | SSC CGL Tier 2 - Study Material, Online Tests, Previous Year

interest on capital in case of
inadequate profit you've discussed this
before at once again replating if
partnership agreement is silent no
interest on capital no salaries payable
and profits are shared in equal ratio
should write equal here no interest on
capital no salary share profit in equal
profit sharing ratio equal profit you
wish so if a partnership agreement a
silent interest on capital is not
payable normally used to be paid and
profit is supposed to be equal profit
sharing ratio is supposed to be equal
but if suddenly an interest is to be
paid if agreement has been made that
salary and interest is to be paid then
this will be paid out of profits let us
see what what is the implication of this
look at this example
profit is twelve thousand okay interest
on capital is four thousand partner
salary is 2,000 so what happens there is
a profit okay twelve thousand profits
twelve thousand interest on capital is
four thousand salary is two thousand a
total of six thousand so suppose we give
the partner interest which our partners
are entitled to interest four thousand
so we've got a balance of eight thousand
we give salary two thousand and we have
got a balance of six thousand this six
thousand is the profit which will be
distributed to partners profit which
will be distributed to partners so that
is adequate profit you pay interest
there is profit of twelve thousand after
you pay interest on capital of four
thousand after you pay salary of two
thousand total of six thousand there is
a balance of six
which is distributed to the partners in
their profit sharing ratio let us take
another example there is a loss of 1000
loss of 1000 interest on capital is 4000
partner salary is 2,000 that since of
agreement interest on capital and
partner salary can be paid only out of
profits so in this case no interest on
capital will be paid no partner salary
will be paid the loss of loss of 1000
will be given to the partners loss of
1000 will be given to the partners
losses distribute whatever is the profit
sharing ratio let us take yet another
example capital accounts of a and B are
one lakh and eighty thousand net profit
of the firm is only five thousand
interest on capital is to be charged on
the rate of five percent if we charge
interest at the rate of five percent we
have to pay five thousand to a and five
percent on eighty thousand we have to
pay four thousand to B that is five
thousand and four thousand the total is
nine thousand but the profits are only
five thousand so what do we do then it
says what what is said there is not
sufficient profit interest has to be
paid only out of profits so profit five
thousand interest on capital comes to
five thousand plus four thousand total
of nine thousand since we cannot pay
nine thousand as interest on capital the
only available amount is five thousand
this has to be given to a and B this
five thousand has to be given to a and B
in the ratio of the entry
which is due to them so 5000 profit will
be given to a will be given to be in
what ratio in the amount that we owe
them 5000 is what is bought to a 4000 is
that what is for to be therefore in the
ratio of 5 is to 4 in the ratio of 5 is
to 4
how much would this be there for a would
get 5000 into 5 by 9 and we would get
5000 into 4 by 9 this is how this profit
would be distributed how much would we
get here
let's say 2 5 7 8 & 2 2 2 2 2 5 7 8 and
2222
if you notice and then this is also
happens to be in the ratio of their
capitals 5 is 2 4 is the ratio of their
capitals 1 lakh is to 80,000 since these
capitals were there from the beginning
of the year and since rate of interest
is the same same such way in case of
inadequate profit such inadequate profit
gets distributed in the ratio of the
Capitals if interest is payable to the
partners actually it is getting
distributed in the amount which is
receivable by the partners for interest
on capital sangre etcetera hmm
so the amount which was due as interest
on capital to a was five thousand to be
is four thousand therefore they get five
thousand distributed to them in the
ratio of five thousand is to four
thousand or five is to four so two five
seven eight two eight two two two two to
be as as impressed on capital as
interest on capital they do not have any
profits to share further so I repeat in
such a case where the Capitals have
remained constant throughout the year
the rate of interest of capital is the
same inadequate profit and impress being
payable on capital the partners the
profit inadequate profit can distributed
to the partners in the ratio of the
capitals
it is actually in the ratio of the
amount which is receivable by them for
interest and salary for interest and
salary